[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]




                 THE IMPACT OF OPERATION IRAQI FREEDOM/
                   OPERATION ENDURING FREEDOM ON THE
                  U.S. DEPARTMENT OF VETERANS AFFAIRS
                             CLAIMS PROCESS

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON DISABILITY ASSISTANCE
                          AND MEMORIAL AFFAIRS

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 13, 2007

                               __________

                            Serial No. 110-8

                               __________

       Printed for the use of the Committee on Veterans' Affairs












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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     RICHARD H. BAKER, Louisiana
Dakota                               HENRY E. BROWN, JR., South 
HARRY E. MITCHELL, Arizona           Carolina
JOHN J. HALL, New York               JEFF MILLER, Florida
PHIL HARE, Illinois                  JOHN BOOZMAN, Arkansas
MICHAEL F. DOYLE, Pennsylvania       GINNY BROWN-WAITE, Florida
SHELLEY BERKLEY, Nevada              MICHAEL R. TURNER, Ohio
JOHN T. SALAZAR, Colorado            BRIAN P. BILBRAY, California
CIRO D. RODRIGUEZ, Texas             DOUG LAMBORN, Colorado
JOE DONNELLY, Indiana                GUS M. BILIRAKIS, Florida
JERRY McNERNEY, California           VERN BUCHANAN, Florida
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota

                   Malcom A. Shorter, Staff Director

                                 ______

       Subcommittee on Disability Assistance and Memorial Affairs

                    JOHN J. HALL, New York, Chairman

CIRO D. RODRIGUEZ, Texas             DOUG LAMBORN, Colorado, Ranking
PHIL HARE, Illinois                  MICHAEL R. TURNER, Ohio
SHELLEY BERKLEY, Nevada              GUS M. BILIRAKIS, Florida

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
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                            C O N T E N T S

                               __________

                             March 13, 2007

                                                                   Page
The Impact of Operation Iraqi Freedom/Operation Enduring Freedom 
  on the U.S. Department of Veterans Affairs Claims Process......     1

                           OPENING STATEMENTS

Chairman John J. Hall............................................     1
    Prepared statement of Chairman Hall..........................    39
Hon. Doug Lamborn, Ranking Republican Member.....................     2
    Prepared statement of Congressman Lamborn....................    40

                               WITNESSES

U.S. Government Accountability Office, Daniel Bertoni, Acting 
  Director, Education, Workforce, and Income Security Issues.....     5
    Prepared statement of Mr. Bertoni............................    41
U.S. Department of Veterans Affairs, Ronald R. Aument, Deputy 
  Under Secretary for Benefits, Veterans Benefits Administration.    32
    Prepared statement of Mr. Aument.............................    61

                                 ______

Bilmes, Linda, Professor, John F. Kennedy School of Government, 
  Harvard University, Cambridge, MA..............................     6
    Prepared statement of Ms. Bilmes.............................    48
Iraq and Afghanistan Veterans of America, Patrick Campbell, 
  Legislative Director...........................................    23
    Prepared statement of Mr. Campbell...........................    58
National Association of County Veterans Service Officers, Ann G. 
  Knowles, President.............................................    17
    Prepared statement of Ms. Knowles............................    51
Veterans for America:
    Stephen L. Robinson, Director of Veterans Affairs............    19
        Prepared statement of Mr. Robinson.......................    53
    Brady Van Engelen, Associate Director........................    21
        Prepared statement of Mr. Van Engelen....................    57
VoteVets.org, Jon Soltz, Co-Founder and Chairman.................    25
    Prepared statement of Mr. Soltz..............................    59

                   MATERIAL SUBMITTED FOR THE RECORD

``How the U.S. Is Failing Its War Veterans,'' Newsweek Magazine, 
  March 05, 2007, by Dan Ephron and Sarah Childress..............    66
``Pomona Veteran Shares Story of Fighting for Health Benefits,'' 
  The Journal News, (Original Publication: March 13, 2007), by 
  Hema Easley....................................................    80
``Vietnam Vet Fights for Fellow Soldiers,'' Times Herald-Record, 
  March 13, 2007, by Greg Bruno..................................    81
``Veterans Face Vast Inequities Over Disability,'' New York 
  Times, March 09, 2007, by Ian Urbina and Ron Nixon.............    82
``The Economic Costs of the Iraq War: An Appraisal Three Years 
  after the Beginning of the Conflict,'' January 2006, by Linda 
  Bilmes, Kennedy School, Harvard University, and Joseph E. 
  Stiglitz, University Professor, Columbia University............    85
``Soldiers Returning From Iraq and Afghanistan: The Long-Term 
  Costs of Providing Veterans Medical Care and Disability 
  Benefits,'' January 2007, by Linda Bilmes, Professor, Kennedy 
  School of Government, Harvard University.......................   108















 
                 THE IMPACT OF OPERATION IRAQI FREEDOM/
                  OPERATION ENDURING FREEDOM (OIF/OEF)
                   ON THE U.S. DEPARTMENT OF VETERANS
                         AFFAIRS CLAIMS PROCESS

                              ----------                              


                        TUESDAY, MARCH 13, 2007

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
                      Subcommittee on Disability Assistance
                                      and Memorial Affairs,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:17 a.m., in 
Room 334, Cannon House Office Building, Hon. John J. Hall 
(Chairman of the Subcommittee) presiding.

    Present: Representatives Hall, Hare, Rodriguez, and 
Lamborn.

               OPENING STATEMENT OF CHAIRMAN HALL

    Mr. Hall. Okay. Now we are going to move to our hearing on 
the Impact of Operation Iraqi Freedom/Operation Enduring 
Freedom (OIF/OEF) Returning Veterans on the VA Claims Process.
    And if our first two panelists would like to come to the 
table in front, Dan Bertoni from the U.S. Government 
Accountability Office and Linda Bilmes from the John F. Kennedy 
School of Government.
    And I think I have asked Congressman Lamborn, if it is okay 
with my colleagues on this side of the aisle, we will make a 
brief statement each and then we will hear from you because 
that is where the hearing is. And then we can each make 
statements as part of our 5 minutes. We can have as many 5 
minutes as we want.
    Thank you again for coming here today, and I am honored and 
at the same time troubled to be sitting here with our topic 
today and the news that has been heard and seen recently and 
what I am hearing from veterans in my district.
    Regardless of whether or not you agree or disagree with a 
particular policy or a particular war, all Members of Congress 
I have spoken to, and I think all Americans, believe that our 
young men and women who serve in OIF/OEF deserve the best 
medical care and all the help we can give them in transitioning 
from military to civilian life.
    Nothing bothers me more than hearing people say they 
support the troops, but seeing a cold shoulder being turned 
when those troops return home, or seeing veterans have to fight 
their way through layers of bureaucracy, or wait for months or 
years while their claims are processed.
    The purpose of today's hearing is to ensure that the 
problems discovered at Walter Reed Army Medical Center are not 
the tip of the iceberg with respect to how prepared we are for 
our returning servicemembers.
    Since the jurisdiction of this Subcommittee is not 
veterans' healthcare but veterans' benefits, we are going to 
focus on the VA's claims process and how it has been impacted 
by OIF and OEF, and more importantly, how it will be impacted, 
I think, as the wave--I think we are only beginning to see the 
front end of the wave of returning veterans who are affected 
physically or psychologically.
    As an aside, I would like to say that I am sponsoring a 
bill to allow active-duty servicemembers the option of 
receiving medical treatment at their local VA hospital if they 
so desire without changing their status as active-duty Members 
of the military.
    In addition to looking at whether the VA is equipped to 
handle the claims of returning servicemembers, this hearing 
will also examine reports of discrepancies among active and 
reserve veterans. Some media reports state that Reserve and 
National Guard servicemembers had a greater risk of their 
claims being denied or lowered than their active-duty 
counterparts.
    I am going to skip over the rest of my statement for now. I 
just want to refer you all to, if you have not seen it already, 
to the March 5th edition of Newsweek, which I will introduce 
into the record, to see how some returning OIF and OEF veterans 
are falling through the cracks.
    [The article referenced by Chairman Hall, ``How the U.S. Is 
Failing Its War Veterans,'' Newsweek Magazine, March 5, 2007, 
by Dan Ephron and Sarah Childress, appears on page 66.]
    Mr. Hall. There is a story on page 33 of that magazine 
about Patrick Feges, who was wounded in October of 2004 and had 
to wait 17 months until his first VA disability check arrived. 
His mother, an elementary schoolteacher, took a second job at 
McDonald's to help support him.
    Mr. Feges' claim was only approved after Newsweek and the 
Veterans for America began looking into his case. I thank them 
both for their work.
    And this hearing today is to see if the 17-month delay is 
an anomaly or evidence of a systemic problem for returning OIF 
and OEF veterans. If it is the latter, I would be interested in 
hearing any and all recommendations from our witnesses on how 
we can fix the problem.
    And now I would like to recognize our Ranking Member, 
Congressman Lamborn, for his opening statement.
    [The prepared statement of Chairman Hall appears on page 
39.]

             OPENING STATEMENT OF HON. DOUG LAMBORN

    Mr. Lamborn. Thank you, Mr. Chairman, for recognizing me. 
And I want to thank you for holding this hearing on the claims 
backlog and how it will affect the returning servicemembers 
from the Global War on Terror.
    As I said earlier, I congratulate you on your being 
appointed as the Chairman of this Subcommittee, and I look 
forward to working with you in a bipartisan manner to solve 
these problems.
    Today we are here to talk about the effect of OIF and OEF 
veterans on the VA claims process. I am more concerned about 
the effect of the VA claims process on our great veterans. And 
since the beginning of Operation Enduring Freedom, more than 
150,000 claims have been filed by OIF and OEF veterans.
    In part, this is a positive response to VA's increased 
outreach, but now we have a responsibility to process these 
claims and to care for these veterans in a responsible manner.
    I believe the first step toward improvement for these 
veterans is to improve the overall VA claims processing system. 
The backlog of compensation and pension claims is over 632,000 
claims, about 15,000 more than a month ago according to the 
VA's weekly report.
    The VA has set a goal to decide a given claim in an average 
of 125 days. While more than 4 months does strain the meaning 
of the word prompt, it is not unreasonable given the complexity 
and the demands of the ``Veterans Claims Assistance Act'' and 
other administrative requirements, but now we need the VA to go 
out and just do it.
    I know that we in Congress bear some responsibility for all 
of the complexity. I look forward to asking Mr. Aument what we 
can do to help improve the bureaucratic process while 
safeguarding it for veterans.
    Mr. Chairman, both the budget views and estimates from the 
Committee's Majority and the Minority recommend 1,000 new hires 
for the VBA over and above the President's request for 457 new 
staff for compensation and pension.
    In two years when they are all hired and trained, they will 
indeed make a difference. The conventional approach of 
increased hiring is entirely appropriate. VBA has over the past 
several years experienced personnel shortages.
    We must also explore some innovative ways to tackle the 
challenge that may have even faster payoffs than the new hires. 
That is why Committee Republicans this year have recommended 
funding for innovative pilot programs to address the backlog as 
well.
    We recommended funding for a pilot program to explore the 
feasibility of inter-governmental and VSO partnerships with VA 
in the development of compensation and pension claims. This 
pilot program would build on positive findings from a 2002 
project conducted between the VA's Buffalo, New York regional 
office and the New York State Division of Veterans Affairs.
    Within six months of their collaboration, the State 
Veterans Division was developing claims in partnership with VA. 
Decisions for the region's veterans came faster and accuracy 
improved. This kind of innovation holds great promise.
    Access to VBA regional offices can be difficult for many 
veterans. That is why we also recommended funding a pilot 
program for mobile claims offices.
    VBA staff Members in mobile offices would provide outreach, 
help veterans file their claims, and gather ombudsman feedback 
and resolution for veterans.
    Mobile offices helping veterans with their claims could 
speed up the claims process by improving communication and 
access for veterans.
    To take advantage of the potential offered by technology, 
we recommend funding to explore a rules-based adjudication 
system. Software could potentially decide simple claims 
accurately, quickly, and consistently so that developers can 
focus on the complex cases.
    For our newest veterans returning from Afghanistan, Iraq, 
and elsewhere in the Global War, we must achieve a seamless 
transition from the military into the VA system. It is apparent 
to me that a seamless transition will help erase that backlog 
because it does increase the system's overall efficiency.
    We need full inter-operable electronic health records 
between VA and Department of Defense, an electronic DD Form 
214, military separation physicals that can also function as VA 
disability physicals, and a disability rating process that 
provides consistent ratings.
    What good is a separation exam and health records from DoD 
if the veteran has to repeat the whole process all over again 
with the VA?
    Mr. Chairman, I am sure you agree no veteran should have to 
wait 6 months to a year for their claim to be decided and then 
endure an appeal possibly that adds another year or two. For 
some veterans, this is not merely inconvenient, it is financial 
and potentially emotional disaster.
    Every one of these claims is an American veteran and his or 
her family awaiting a decision. Every veteran deserves to have 
their claim adjudicated quickly and accurately.
    One thing is certain. If we do not fix this problem now, 
our legacy will be an intolerable backlog regrettably endured 
by this generation of veterans and inexcusably bequeathed to a 
future generation. I firmly believe no one in this room wants 
such an outcome.
    I want to thank the witnesses for their service and for 
their testimony. I look forward to hearing it and I look 
forward to our continued discussion today.
    Mr. Chairman, I yield back.
    [The prepared statement of Congressman Lamborn appears on 
page 40.]
    Mr. Hall. Thank you, Mr. Lamborn. Some good ideas there, 
and we will be taking close looks at them as we go forward.
    If our other Members would be content to submit opening 
statements to the record, then we will move straight to the 
testimony.
    And if we could start with you, Mr. Bertoni. Daniel 
Bertoni, the Acting Director of Education, Workforce, Income 
Security Issues for the GAO.
    Welcome, Mr. Bertoni.

   STATEMENTS OF DANIEL BERTONI, ACTING DIRECTOR, EDUCATION, 
    WORKFORCE, AND INCOME SECURITY ISSUES, U.S. GOVERNMENT 
ACCOUNTABILITY OFFICE; AND LINDA J. BILMES, PROFESSOR, JOHN F. 
KENNEDY SCHOOL OF GOVERNMENT, HARVARD UNIVERSITY, CAMBRIDGE, MA

                  STATEMENT OF DANIEL BERTONI

    Mr. Bertoni. Mr. Chairman, Members of the Subcommittee, 
good morning. I am pleased to be here to discuss the Department 
of Veterans Affairs disability claims process in the context of 
the wars in Iraq and Afghanistan.
    Last year, VA provided nearly $35 billion in benefits to 
3.5 million veterans and survivors. For years, the claims 
process has been the subject of attention by VA, the Congress, 
and others due to untimely decisions, large backlogs, and other 
weaknesses.
    In 2003, we designated VA and other Federal disability 
programs high risk because these programs were based on 
outmoded concepts and continue to experience management and 
operational problems. And since that time, we have issued 
numerous reports with recommendations for change.
    My testimony today is based on our prior work and focuses 
on three areas, service delivery challenges facing VA, actions 
taken to better serve applicants, and areas where fundamental 
reform may be needed to further improve performance in the 
future.
    In summary, several factors have created service delivery 
challenges for VA. In general, the growth in disability claims 
has strained operations. Since 2000, the number of annual 
claims, including those filed by veterans of Iraq and 
Afghanistan, have risen steadily from about 579,000 to over 
800,000 last year.
    While VA has had success in the past reducing its claims 
inventory, it is now losing ground. Since 2003, pending claims 
have increased almost 50 percent to nearly 400,000. Those 
pending over 6 months also increased more than 75 percent to 
over 80,000.
    And the time required to resolve appeals also remains 
problematic. The current average processing time of 657 days is 
far from VA's stated goal of 1 year.
    Other factors affecting performance include court decisions 
requiring VA to assist veterans in developing claims, laws and 
regulations which have expanded benefit entitlement, increasing 
caseload complexity as more veterans claim multiple 
disabilities, difficulties obtaining key evidence in a timely 
manner, and VA's increased outreach to veterans and 
servicemembers.
    VA is also receiving more claims for new and complex 
disabilities related to combat overseas, including traumatic 
brain injuries, as well as posttraumatic stress disorder cases 
as well, which are generally hard to evaluate.
    In light of these considerable challenges, we have noted 
that continuing to devise new ways to work smarter and more 
efficiently will be essential to VA's productivity. VA has 
taken steps to improve claims process. Its 2008 budget requests 
over 450 additional claims processing staff, a 6 percent 
increase over last year.
    Other productive initiatives include increasing overtime, 
using retired staff as trainers, and piloting a paperless 
benefits delivery and discharge process where servicemembers' 
disability claim and medical records are captured 
electronically prior to separation.
    VA has also enhanced internal training and information 
sharing to reduce the number of cases sent back by the Board of 
Appeals due to errors or incomplete evidence.
    VA also recently announced a new initiative to provide 
priority processing of all OIF and OEF disability claims.
    It is imperative that VA continue to address weaknesses and 
bottlenecks in its system to expedite case processing, increase 
decisional accuracy, as well as consistency.
    Through our ongoing work, we will continue to monitor and 
assess VA's near-term initiatives to ensure that VA balances 
the need for improved case processing, that they need to 
protect the veterans' due process rights.
    Going forward, there also may be opportunities for more 
fundamental reform that could dramatically improve the program 
in the longer term.
    In designating VA's disability program high risk, we noted 
that its processes did not reflect the current state of 
science, medicine, technology, and the national economy which 
has moved away from manual labor to service and knowledge-based 
employment.
    We recommended that VA reassess its disability criteria to 
better align with changes in the national economy and that it 
place a greater emphasis on early intervention and 
rehabilitation services.
    We have also reported that VA's field structure may impede 
efficient operations. Despite limited efforts to consolidate 
some processes and workloads, VA has not changed its basic 
field structure for processing claims at 57 regional offices 
which have experienced large variations in productivity, 
accuracy, and consistency.
    While reexamining claim processing challenges can be 
daunting, key efforts are underway. In 2003, the Congress 
established the Veterans Disability Benefits Commission to 
study many of the issues discussed today, including VA claims 
processing operations and the location and number of processing 
centers.
    The Commission is scheduled to report to Congress by 
October of 2007. And like you, we look forward to the findings 
and recommendations.
    Mr. Chairman, this concludes my remarks. I am happy to 
answer any questions that you or the Members of the 
Subcommittee may have. Thank you.
    Mr. Hall. Thank you, Mr. Bertoni. And your written 
testimony as submitted will be added to the record.
    [The prepared statement of Mr. Bertoni appears on page 41.]
    Mr. Hall. And before we go to questions, we would like to 
hear the statement of Professor Linda J. Bilmes from the 
Kennedy School of Government at Harvard University.
    Professor Bilmes.

                  STATEMENT OF LINDA J. BILMES

    Ms. Bilmes. Thank you, Mr. Chairman, Mr. Lamborn, Members 
of the Subcommittee. Thank you for inviting me to speak to you 
today on this important topic.
    I am Professor Linda Bilmes, a faculty member of the 
Kennedy School of Government where I teach budgeting and public 
finance.
    Just by way of background, last year, I co-authored with 
Nobel Laureate Professor Joe Stiglitz a paper that analyzed the 
economic cost of the Iraq War. One of the long-term costs we 
identified is the cost of providing lifetime disability 
benefits and medical care for veterans.
    [The paper referenced above, "The Economic Costs of the 
Iraq War: An Appraisal Three Years after the Beginning of the 
Conflict,'' appears on page 85.]
    Today I would like to focus on the projected number of 
veterans' claims, the capacity of the Department of Veterans 
Affairs to process those claims, and the cost of providing 
benefits to returning OIF/OEF soldiers.
    This was the subject of my second paper written this year 
which specifically looked at the cost of providing care and 
disability benefits to veterans in Operation Iraqi Freedom and 
Enduring Freedom. The paper has been entered into the record.
    [The second paper referenced above, ``Soldiers Returning 
From Iraq and Afghanistan: The Long-Term Costs of Providing 
Veterans Medical Care and Disability Benefits,'' appears on 
page 108.]
    I would like to discuss five key areas of concern and then 
to recommend five changes that I believe would significantly 
streamline the process.
    First, the areas of concern. First, the VBA is currently 
overwhelmed with the volume of claims it is receiving, leading 
to a huge backlog. In 2006, the VBA received over 800,000 
claims.
    Secretary Nicholson testified last month that he expects to 
receive 1.6 million additional claims in the next 2 years. My 
own projections show that between 250,000 and 400,000 of these 
claims will be new, unique applications from soldiers currently 
serving in Iraq and Afghanistan. The number of pending claims 
and paperwork has risen from 69,000 in 2001 to more than 
600,000 as of today.
    Second, the claims process itself is extremely long, 
cumbersome, and paperwork intensive. As noted, the VBA takes an 
average of about 6 months to process an initial claim and an 
average of about 2 years to process an appeal. By contrast, the 
private sector medical insurance settles 30 million insurance 
claims, including the appeals, within an average of 89.5 days.
    The process for ascertaining whether a veteran is suffering 
from a disability and rating the percentage level of a 
veteran's disability is far too complex. After a veteran 
applies to one of the 57 regional offices, a claims adjudicator 
evaluates the veteran's service-connected impairments and 
assigns a rating for the degree to which the veteran is 
disabled.
    Claims specialists determine the percentage of disability 
for each condition in increments of ten. However, you would 
think that would be complicated enough, but conditions are not 
scaled monotonically from zero to a hundred.
    Mental conditions, for example, are rated zero, ten, 
thirty, fifty, seventy, or a hundred. Coronary artery disease 
ratings are ten, thirty, sixty, and one hundred. Spinal 
conditions are rated ten, twenty, thirty, forty, fifty, one 
hundred. A huge amount of time and effort is devoted to making 
these determinations and then on the veteran's side, to 
appealing the decision.
    There is wide disparity in efficiency between individual 
VBA offices. Regional offices are inconsistent in how they rate 
disabilities. GAO found that the days needed to process a claim 
range from 99 days in the Salt Lake City VA to 237 in Honolulu. 
Currently some of the States providing the most soldiers for 
the war are suffering the longest delays in claims 
adjudication.
    In addition, the claims themselves are more complicated 
than in previous conflicts. Vietnam-era claims cited on average 
three disability conditions. Gulf War veterans filed four. For 
GWOT veterans, the average claim includes five separate 
disability issues. One-quarter of the new claims filed this 
year cited eight or more disabilities. And then since each item 
within a claim is treated separately, there is a great deal of 
opportunity for duplication and delay.
    The VBA has more than 9,000 claims specialists. Many of 
them are themselves veterans, and they generally do a good job 
and they try very hard to help veterans. But they are under an 
enormous strain. They are required to assist the claimant in 
obtaining evidence in accordance with hundreds of arcane VBA 
regulations, policies, procedures, and guidelines. They have to 
rate the claims, establish files, authorize payments, conduct 
in-person and telephone interviews, process appeals, and 
generate various notification documents through the process. 
New employees require about 18 months to become trained.
    For all these reasons, I believe that the agency as 
currently structured is simply not capable of settling the 
current and projected volume of claims in a timely manner.
    My third point is that the projected number of claims from 
the wars in Iraq and Afghanistan will rapidly turn this 
disability claims problem into a crisis. The current conflict 
has the highest incidence of nonmortal casualties in U.S. 
military history, a ratio of 16 woundings or injuries per 
fatality.
    To date, of the more than 1.4 million U.S. soldiers who 
have been deployed, about 631,000 have been discharged and one-
third have already been treated and diagnosed at VHA hospitals 
and clinics. About 180,000 have applied for disability 
benefits.
    If returning GWOT soldiers claim benefits at the same rate 
as veterans from the first Gulf War, we can expect anywhere 
from 638,000 to 869,000 unique, new first-time claims from the 
GWOT in the next 5 years. If all the troops return home sooner, 
if they all return home by 2008, there are likely to be more 
than 400,000 new claims by the end of 2009 alone.
    Fourth, the cost of providing disability benefits to GWOT 
veterans is projected to be between 70 billion and 150 billion 
in 2007 dollars. The cost is not the only issue here, but it is 
yet another major cost of war that has not been anticipated by 
the Administration.
    The eventual cost will depend on several factors, including 
the total number of troops deployed and the length of time they 
are deployed, the rate of claims and utilization of benefit 
programs by returning troops, and the cost of living 
adjustments in their benefits.
    Fifth, it is important to understand that the disability 
process and the health process are inter-related. The growing 
number of disability claims is creating additional demand for 
veterans' medical examinations. This is adding to pressure on 
the veterans health facilities.
    The current system, as Mr. Lamborn pointed out, does not 
guarantee that all soldiers receive complete physicals in the 
military upon discharge and even if they do, they cannot 
automatically transfer that information from DoD to VA.
    Consequently newly discharged veterans who intend to file a 
disability claim are seeking medical examinations from VHA 
health facilities in order to document their disabilities. Some 
of the backlog at the veterans health facilities is from 
veterans who are seeking appointments not necessarily because 
they require immediate treatment but they have to verify a 
disabling condition, even in cases where it was already 
documented upon discharge from the military.
    Recommendations. To address the immediate backlog, the 
proposal from Secretary Nicholson is to hire 457 additional 
claims specialists, to increase the claims processed per 
specialist from 98 to 101, and to make training manuals more 
readily available.
    He projects that this will cut the length of time it takes 
to process a veteran's claim by 32 days by 2008. I am not at 
all optimistic that a few hundred inexperienced new staffers, 
even assuming that they can be hired quickly, will produce a 22 
percent improvement in claims processing time during a period 
in which the agency faces a huge influx of complex claims.
    Indeed, it is conceivable that the task of training and 
integrating a large number of inexperienced new hires will in 
the short term actually lengthen claims processing times and 
increase the number of appeals. And this problem is compounded 
by the fact that like many Federal agencies, many experienced 
VBA personnel will be retiring over the next 2 to 5 years.
    Therefore, I believe that finding an answer to the claims 
problem requires us to think outside the box, and I would like 
to offer several proposals that do this.
    First, for the next 2 years, the VBA should accept and pay 
all disability claims by returning GWOT soldiers at face value 
and then audit a sample of them. In other words, what we should 
do is essentially what the IRS does with taxes, accept the 
claims and then audit them.
    I would not see this as being a long-term solution, but as 
a short-term solution. This would ensure that new returning 
veterans do not fall through the cracks and it would shift the 
focus while the VBA reforms its process.
    Second, the VBA should replace the cumbersome zero to one 
hundred scale for disabilities with a simple four-level 
ranking, zero disabled, low disability, medium disability, and 
high disability. This would immediately streamline the process, 
reduce discrepancies between regions, and likely cut the number 
of appeals.
    The VBA should create a short form for returning veterans 
using this four-level ranking and set a goal of processing all 
claims within 60 days of receipt. This new system should be up 
and running within 2 years, including retraining the workforce 
and developing necessary guidelines and appeals procedures.
    Third, all soldiers serving in the GWOT should receive a 
mandatory full medical examination at discharge from DoD with 
all records from this examination made available electronically 
to the VBA immediately, and then the VBA should be able to use 
these records to grant disability, to spot check and audit 
claims, and to assist veterans and to relieve some of the 
pressure on VBA.
    Moreover, if veterans are discharged without full medical 
examinations, they should be reimbursed to receive such an 
examination from any fully accredited physician within 90 days 
of discharge, and this record should be used by VBA for making 
claims.
    Fourth, VBA should shift some of its focus away from claims 
processing onto more rehabilitation and reintegration of 
veterans. In other words, the VBA staff should be used more as 
a strategic asset. More of them should be placed in 
neighborhood veteran centers, health centers, and assisting in 
benefits at discharge systems.
    Fifth and finally, Congress should enact what is a bill now 
in the Senate, Senate Bill 117, the Lane Evans ``Veterans 
Healthcare and Benefits Improvement Act,'' co-sponsored by 
Senators Obama and Snowe. This is an excellent piece of 
legislation that would improve data collection, improve 
monitoring of claims, improve access to mental healthcare, and 
improve the benefits and level the playing field for Guards and 
Reservists.
    Thank you very much for your time and attention, and I 
would be pleased to answer any questions you have.
    [The prepared statement of Ms. Bilmes appears on page 48.]
    Mr. Hall. Thank you, Professor Bilmes.
    Excellent presentations from both of our witnesses.
    I will keep my questions short for now, and say there have 
been a number of instances you both have brought up and 
Congressman Lamborn has also mentioned the redundancy of having 
a discharge physical from DoD and then an evaluation physical 
from the Department of Veterans Affairs.
    I had a visit yesterday in my district with a soldier, a 
Vietnam veteran, who had repeated physicals for a prostate 
diagnosis when, in fact, he had prostate cancer. He already had 
scans showing that it was in his bones already and he went 5 
years before getting his claims recognized and the bills paid.
    And I will submit a couple stories about that into the 
record, but he was complaining not just that he was going back 
for redundant physicals, but the time the doctor was taking on 
his could have been used for somebody who actually needed a 
physical who had not been diagnosed already with a more high-
tech means.
    [The articles referenced by Chairman Hall, ``Pomona Veteran 
Shares Story of Fighting for Health Benefits,'' The Journal 
News, (Original Publication: March 13, 2007), by Hema Easley, 
``Vietnam Vet Fights for Fellow Soldiers,'' Times Herald-
Record, March 13, 2007, by Greg Bruno, appear on pages 80 and 
81.]
    And it seems that obviously there are some procedural 
guidelines, the simplification that you speak of in terms of 
categories, but also in terms of certain conditions, what the 
doctors and the staff are required to do, maybe to cover their 
own backs so that they can show a paper trail and not be 
questioned later.
    Which would you suggest, and this can be for both of our 
witnesses, that we accept the DoD's separation physical, we 
make that mandatory? And you were saying it did not always 
occur, but that we make that mandatory and make that the 
equivalent of a VA evaluation entry physical or vice versa.
    And a more radical thought, what would you think of--it has 
been suggested recently to me--what would you think of the 
Department of Veterans Affairs being folded into the Department 
of Defense so that the true cost of war and of the use of our 
soldiers is evaluated in the long term and seen as part of the 
same budget?
    Ms. Bilmes. Shall I comment first? First of all, in terms 
of the discharge issue, I think there are three parts to it. 
First, all soldiers should have a mandatory physical on 
discharge from the military, you know, while they are there in 
the military.
    And if you think about the private sector analogy, you 
cannot imagine most employers dumping the entire cost and 
responsibility on to their insurers, which is sort of the VA, 
for the care of their employees.
    So, I would recommend that they should have a mandatory 
examination, and it is very important that the information be 
then useable, that the files be electronically immediately 
available to people in the VA and that they not be sort of at 
the mercy of the fax machine to be trying to locate documents 
from the DoD, and finally that this examination be allowable 
within the VA for benefits.
    You know, those are three different things that need to be 
accomplished at the same time. But I strongly feel it would be 
very helpful.
    Secondly, regarding the more radical idea of folding the VA 
into DoD, I would not be in favor of that at this time. I think 
that generally the culture in the VA is very much an empathetic 
culture that favors the veteran, that cares about the veteran.
    Certainly when you speak to people who run the polytrauma 
units and some of these units, they are wonderful people. They 
really, care about the veterans and there is sort of an 
inherent conflict in putting some of those people into a 
military fighting machine.
    However, there has to be a much better transition between 
the DoD and the VA, and GAO has certainly documented many cases 
of a lack of sharing of information between DoD and VA.
    So what typically happens now is a veteran has to scramble 
around, having already fought for his country, to get hold of a 
blood test or something like that was already taken in DoD. It 
takes a huge amount of time and effort just to get the most 
basic information that DoD already has.
    So this kind of lack of sharing of DoD medical records and 
medical information with VA simply has got to be stopped.
    Mr. Hall. Thank you, Professor.
    My time has expired, and I will turn to Ranking Member 
Lamborn.
    Mr. Lamborn.
    Mr. Lamborn. Thank you, Mr. Chairman.
    Mr. Bertoni, what do you think about the feasibility of the 
VA using a rules-based computer system to automate some of the 
claims decisions that do not require complex interpretations?
    Mr. Bertoni. I think for some straightforward maladies, 
disabilities, that is a possibility. There can be deviations 
even for those and perhaps a rules-based system would not work. 
There would have to be, I think, an escape hatch where you 
would go to another process if it did not apply.
    But certainly the concept for applying that technology or 
that approach to more straightforward--I do not want to say 
simple--but more straightforward conditions, there is a 
potential.
    But we have not looked at that. We would be happy to 
explore that further in the future though. But conceptually it 
is possible to use.
    Mr. Lamborn. Thank you.
    And, Professor Bilmes, in your study, you propose a change 
in the disability rating system to four levels that you just 
described to us.
    What would be the compensation levels for each of those 
four categories?
    Ms. Bilmes. Sir, you know, I have not studied what would be 
the compensation levels for those four levels, but I have 
discussed this proposal with a number of veterans organizations 
as well as Cynthia Bascetta at GAO. And I believe that it is 
something that should be studied. I mean, I think it could be 
designed to be a better and fairer system.
    Mr. Lamborn. Okay. Thank you.
    And which VSOs were you just referring to?
    Ms. Bilmes. I have been in contact over the course of the 
last 6 months on all of the research I have done with the 
American Legion, the Veterans of Foreign War, the Paralyzed 
Veterans of American, the Vietnam Veterans of America, the 
Veterans for America, the Disabled Veterans of America, the 
Iraq and Afghanistan Veterans, as well as other groups of 
veterans, the university veterans organizations, you know, with 
basically a full range of the veterans organizations.
    Mr. Lamborn. Thank you, Professor.
    Ms. Bilmes. Indeed, I want to point out the reason I wrote 
this paper is that veterans from the Legion, the VFW, and 
Veterans for America approached me and asked if I would look at 
this.
    Mr. Lamborn. Okay. Thank you.
    Mr. Bertoni. Mr. Chairman, could I respond to your first 
question----
    Mr. Hall. Yes. Certainly.
    Mr. Bertoni [continuing]. With regard to the exit physical? 
I believe an exit physical, regardless of whether it is at DoD 
or VA, makes good sense in terms of establishing a baseline 
whether that person ultimately never even enters the disability 
system or whether they do shortly thereafter.
    But I think it is a good idea to have. We think it is a 
good idea to have that baseline. And certainly when you look at 
the VA's Benefits Delivery at Discharge Program, that is an 
avenue where you are getting pretty comprehensive medical 
information, historical information up front where you can use 
that in the event of a claim. And to the extent that that is 
electronic, it can be transferred electronically, that is even 
better.
    Mr. Hall. Okay. Thank you, Mr. Bertoni, Professor Bilmes.
    I will now recognize for his questions Congressman 
Rodriguez for 5 minutes.
    Mr. Rodriguez. Thank you very much, and thank you for your 
testimony.
    And let me just make a couple of comments and ask you for 
your comments. First of all, you know, the recommendations that 
you have made with the exception of the first one, are good.
    And I think the idea of the Ranking Minority Member about 
trying to get an assessment on some of the individuals who are 
almost assured through a computer process, that they will 
receive the correct rating that they deserve. It might be 
something that we ought to look at.
    But let me make some general comments. It is my 
understanding, and it is based on maybe just stereotypes and 
feedback, because there were some people that, I thought it was 
a no-brainer, they should have received something the first 
time around. The general rule is, and I tell them, hey, you are 
going to get turned down the first time no matter what, so you 
just apply the second time and keep going at it.
    And is there a feeling within the system that they 
automatically--because that is the feeling that we have back 
home--that they automatically, no matter how genuine their 
request is, they are going to get denied the first time and 
that there is an attitude by the administration, by the VA to 
do that.
    I am wondering if from region to region, how that varies in 
terms of how veterans get treated in one region versus another, 
and if there have been any assessments from that perspective? I 
would assume that in some areas where there is a no-brainer, 
that we just go ahead and recognize the fact that these 
individuals might deserve those benefits. Just do that, and 
that in itself would reduce the number of claims in the future 
because they have a feeling, like I do, that they are going to 
get turned down the first time anyway.
    Ms. Bilmes. I think that may be a perception that some 
people have, but my research showed that 88 percent of claims 
are accepted, at least at some level. That means at least part 
of the claim is granted.
    So, you know, my sense is that the real problem here is 
that when you have a system where almost 90 percent of the 
claims are eventually granted, the process of getting to that 
final point is unbelievably complex and bureaucratic. And so it 
is really a process problem compounded by a huge volume of 
incoming claims problem.
    Mr. Rodriguez. You just indicated that 88 percent get 
granted and then at the end 90 percent. That means all this 
fighting is over 2 percent?
    Ms. Bilmes. No. Eighty-eight----
    Mr. Rodriguez. Or did I misunderstand?
    Ms. Bilmes. If I submit a claim, 88 percent of the total 
claims do get granted, but sometimes claims have multiple 
parts. The claim might have four parts and not all of the parts 
might be granted.
    And what we see in this war is much greater complexity of 
claims. And so we do not have the data yet on how many, at 
least I do not have the data on what percentage of, say, an 
eight-condition claim, you know, is granted.
    Mr. Rodriguez. And do any of you have any data on the 
regions, if one region is harsher than the other regions?
    Mr. Bertoni. Yeah, I can speak to that. I would reiterate 
what the witness just said that there is a continuum. Someone 
can apply, be denied, and ultimately get to appeal and their 
case will be approved. And ultimately as they go through that 
process, we end up with the 80 percent approval rate.
    As far as consistency across regions, we have reported on 
numerous occasions that there is considerable inconsistency 
across the 57 regional offices. And veterans with like 
conditions are not always treated consistently in terms of the 
actual determination of disability, the compensation amount, 
and/or the rating percentage.
    So there has been numerous reports that we put out where we 
have been concerned about consistency. We have recommended that 
VA look at all levels of their decisionmaking process, identify 
specific disabilities that are most problematic or areas that 
are most problematic and take actions to address them. And we 
are aware of some movement on their part to do that.
    But, yes, consistency has been a long-standing issue and 
your benefit amount or decision should not be contingent upon 
where you filed.
    Mr. Rodriguez. My last comment. I know that we had 
situations where we would submit a case on behalf of a veteran, 
and I think most of the Members of Congress, I think, are doing 
a lot of the casework for VA, and we would submit it and then 
30 days later, we would call up and they would say, sorry, you 
know, we have not gotten it yet. So we would submit it again, 
and this was a game that was played.
    Have we made any end roads in that area?
    Mr. Bertoni. In terms of hand-offs and lost documents, I 
mean, I think that is part of the paper process that we are in. 
You know, we have real concerns about the hand-offs, the 
movement of case files across country, the brokering of claims, 
how that can result in just lost records and materials.
    So certainly, yes, that is an issue of concern. I cannot 
talk to specific circumstances, but, yes, it is an issue.
    Mr. Rodriguez. Thank you. My time has expired.
    Thank you, sir.
    Mr. Hall. I thank the gentleman from Texas.
    I now recognize the gentleman from Illinois, Mr. Hare.
    Mr. Hare. Thank you, Mr. Chairman.
    Thank you both for coming this morning.
    It seems like every time we take one step forward here on 
disability, we are taking two or three steps backward. And, you 
know, we really, from my perspective, have got to get this 
under control and we have got to do it sooner rather than 
later.
    And, Professor, let me just say I like what you had in your 
testimony in terms of your recommendations. I think that would 
go a long way toward helping solve some of the problems that we 
have encountered here because I have a lot of veterans in my 
congressional district and I hear this over and over again, 
``It takes so long and, you know, I fought and defended this 
country and, you know, what is the holdup here.''
    And for that veteran, they do not understand the process. 
They need the help. And they said you guys have got to figure 
it out. So, that is why we are here today.
    I just want to ask you, if I could, Mr. Bertoni. You said 
in your written testimony that due to the increased number of 
compensation claims for posttraumatic stress disorders, it adds 
to the amount of time required to process the claim because the 
claims are more difficult to evaluate and provide evidence for.
    Can you talk about why these claims are more difficult to 
evaluate and what actions the VA can take to improve the 
process to evaluating medical or mental health?
    Mr. Bertoni. Sure. And in the case of PTSD claims, one of 
the key variables is to document the stressor event. And if a 
veteran comes into a regional office and claims PTSD, if in the 
record they can corroborate combat experience or POW status, 
that individual's allegation of a stressor event is sufficient 
for them to process the claim.
    If they cannot substantiate combat or a POW status and this 
individual alleges a stressor event, you have to go to the 
record. And if it is not immediately available, the regional 
office submits a claim.
    The National Personnel Records Center is a VBA unit that 
has to do the search to find that specific event that is 
claimed. And you are talking about historical record, you know, 
the person's unit, whatever, to dig through this information.
    If, in fact, the individual is a Marine Corps veteran, it 
is easier. There is an electronic historical database where the 
analyst can go and do the research. And I believe we were told 
that that turnaround time could be as little as one day. Any of 
the other services, we are in a more difficult situation, 
basically slog through manual paper documents, a needle in a 
haystack. And that can take up to in excess of a year.
    So, you know, we are back to this automated electronic 
environment versus paper manual environment, and you can see 
how the deficiencies occur when you have two environments.
    We did find that VA has been trying to sort of offset, at 
least in a couple regional offices. They have cobbled together 
or put together an unclassified historical database of records 
that they are able to use prior to making that referral to the 
Records Center. And we are told that they can close the loop on 
that in about 3 weeks. And they have farmed that out to other 
regions, and we have recommended that they consider a similar 
system nationally.
    Mr. Hare. Okay. In both the testimonies, you state that the 
VBA needs to seriously reexamine the structure and program 
design for the benefits system.
    I wonder if you could describe what specific structural 
problems you have encountered and what recommendations you 
would have to improve the VBA system to meet the demands.
    Ms. Bilmes. I favor, as I have testified, a complete revamp 
of the system basically in every way. I mean, first of all, I 
think that the claims disability rating system needs to be 
vastly simplified. I think there needs to be a short form where 
people can apply quickly.
    I think that the benefit of the doubt should go to the 
veteran right away up front so that claims should be 
essentially granted for returning first-time unique claims at 
least to some extent, so a veteran has a small stipend at least 
coming in while the rest of the claim is processed.
    And I think that the VA needs to kind of shift its culture 
in the benefits process, shifting the culture away from trying 
to make sure that not one penny is given out that is not 
deserving to a process of trying to use the people more 
strategically, deploying them more in the field at benefits of 
discharge, deploying them more in theatre which is not done at 
the moment, and deploying claims adjudicators in the vet 
centers which are very popular neighborhood walk-in clinics for 
veterans to help them fill in these simplified forms.
    And so I think that the whole way that it is structured in 
terms of what people do, what the process is, the records, the 
medical records for granting disabilities, and the culture 
needs to be reformed.
    Mr. Hare. Thank you.
    Mr. Bertoni. Our position is that as VA considers how it 
may want to modernize its disability process and think more 
about more timely intervention support services, with that, you 
might want to look at how you are organized structurally.
    We do know that they have at times consolidated workloads 
and processes to ring out efficiencies, and these were mainly 
tactical efforts to try to go after problem areas or backlogs.
    But we also know that in doing that in those isolated or 
specific instances, they were able to again ring out additional 
efficiencies, productivity increases, accuracy, consistency, 
building staff expertise are particular issues and even 
administrative overhead savings.
    We also know where they have not done that in their current 
existing 57 regional office structure, we have a situation with 
massive productivity variance. We have timeliness, accuracy, 
consistency issues.
    So we believe that they really need to look at this more 
strategically as they move into the 21st century, as we move 
forward, and think about this more strategically and how they 
want to reorganize and they have the right people, processes, 
and technologies in the right place going forward.
    We do not have the answers, but somebody has to take a hard 
look at this.
    Mr. Hare. Thank you.
    Mr. Hall. Thank you very much, Mr. Bertoni and Professor 
Bilmes.
    The idea of giving veterans the benefit of the doubt sounds 
good to me. When you said that in the end 88 percent of claims 
are approved, that would seem to indicate that maybe only 12 
percent of them are an excessively ambitious task.
    And so we may actually save money as well as serve our 
veterans benefit if we tried your idea of a temporary plan of 
accepting all claims and then auditing them later so that our 
returning soldiers get, as you said, at least a baseline of 
assistance.
    So thank you very much, both of you, and the first panel is 
now excused.
    Mr. Bertoni. Thank you.
    Ms. Bilmes. Thank you.
    Mr. Hall. And we are going to try to keep moving along 
because we all have busy days of solving such serious problems 
and others.
    Panel two, Stephen Robinson from Veterans for America, 
Brady Van Engelen from Veterans for America, Patrick Campbell 
from Iraq and Afghanistan Veterans for America, and Ann Knowles 
of the National Association of County Veterans Service 
Officers, please come up and take your seats. Oh, I am sorry. 
Jon Soltz from VoteVets.org. Thank you, Mr. Soltz.
    Thank you all. You do not need to hear a speech from me. We 
will start with Mrs. Knowles.
    And we have your written testimony and it will be included 
in the record, so feel free to deviate from your statement.

 STATEMENTS OF ANN G. KNOWLES, PRESIDENT, NATIONAL ASSOCIATION 
   OF COUNTY VETERANS SERVICE OFFICERS; STEPHEN L. ROBINSON, 
 DIRECTOR OF VETERANS AFFAIRS, VETERANS FOR AMERICA; BRADY VAN 
  ENGELEN, ASSOCIATED DIRECTOR, VETERANS FOR AMERICA; PATRICK 
 CAMPBELL, LEGISLATIVE DIRECTOR, IRAQ AND AFGHANISTAN VETERANS 
       OF AMERICA; AND JON SOLTZ, CHAIRMAN, VOTEVETS.ORG

                  STATEMENT OF ANN G. KNOWLES

    Ms. Knowles. Thank you, sir.
    Mr. Chairman and Members of the Committee, it is truly my 
honor to be able to present this testimony before you. As 
President of the National Association of County Veterans 
Service Officers, I am going to talk about the issues affecting 
the veterans of the OIF and OEF.
    Returning veterans from these two theaters of action have 
been receiving priority care from the Veterans Administration. 
There are valid reasons, but it has resulted in many other 
claims being placed on the back burner, claims that have equal 
and valid reasons for priority action.
    VA officials have stated the number of claims filed since 
2000 has risen nearly 40 percent, and this has caused the 
number of cases pending to balloon to over 800,000. Yet, only 
about 4 percent of the new claims are from Iraq and 
Afghanistan. This is according to the St. Louis Post dispatch 
February the 26th, 2007.
    To stay on target with the subject at hand, let us look at 
the number and nature of injuries of OIF and OEF veterans. It 
has been reported by the DoD that over 19,000 Purple Heart 
Medals have been awarded since the beginning of OIF and OEF. 
Each of these is a potential claim for benefits with the DVA. 
Add to this another 25,000 wounded and ever-escalating KIA 
numbers as additional troops are assigned to Iraq.
    Secretary Nicholson in his interview with Bob Woodard of 
ABC News showed statistics of treatment within VA facilities of 
over 200,000 OIF/OEF veterans, and not every treatment is a 
claim, but even a small percentage of these filing a claim for 
benefits will escalate the numbers in the pipeline waiting 
processing.
    PTSD is recognized in returning veterans from Iraq and 
Afghanistan. Their treatment has been given priority. A United 
States Army study places those suffering from PTSD at 
approximately one in eight soldiers who have served in either 
Iraq or Afghanistan.
    A survey of deployed troops indicates that twelve percent 
of those serving in Iraq and up to 6 percent who served in 
Afghanistan have reported symptoms of major depression, 
anxiety, or PTSD.
    The most frightening statistic is that only 38 percent were 
interested in getting help and as low as 28 percent actually 
have even looked at help. They cited concerns for how they 
would be viewed by their peers if they sought assistance.
    This, Mr. Chairman, is a ticking timebomb that will 
eventually blow up in our faces, not necessarily in the face of 
the military, but in the local communities where the veterans 
are returning to their homes.
    CVSOs and the VA would be forced to deal with these issues 
because local officials and families concerned about the mental 
health of these young men and women will demand it. And it is a 
sad state of affairs indeed.
    Another issue is the number of veterans who are returning 
with missing limbs and prosthetic devices. Battlefield 
treatment and speed of evacuation of wounded service men and 
women have advanced substantially over the years. Many of the 
veterans returning from the Gulf region needing specialty care 
for missing limbs may well have died in previous battles.
    This has placed a tremendous and vital responsibility on 
the Veterans Administration that they are ill equipped to deal 
with in health and medical care, but also to provide adequate 
and timely and fair compensation decisions for the veterans, 
their families who are desperately trying to survive.
    Other issues that must be addressed is that of placing one 
group of veterans in a higher priority or class than other 
veterans. When the VA decides to give top priority to a select 
group of claims, the other claims, the veterans suffer. Some 
claims that have been pending for a year or more suddenly 
become less likely to be rated or receive appropriate attention 
because of a change of a policy.
    This is because personnel in the regional office have been 
instructed to focus on OIF and OEF veterans' claims, the 
determent of other claims that have been working their way 
through this backlog or inventory or whatever we want to call 
it now. We feel this is tragic and extremely inappropriate. 
Veterans continue to die while waiting for VA benefits.
    We are concerned with the VA's centralization of OIF and 
OEF claims. We are not convinced that the practice can be 
justified. When the regional office claims are brokered out, 
the focus becomes quantity and not quality. Issuing flawed 
rating decisions just increases the inventory or backlog of an 
already inflated and bloated backlog of appellate litigation, 
but we have some suggested solutions for you.
    One solution would be to reemphasize the BDD. That is the 
program, a pre-separation program. Claims and medical course 
could be submitted prior to separation allowing local VA teams 
to adjudicate the claims and to dramatically shorten the time 
that the veteran has to wait for a decision after separation.
    Second, streamlining single issue disability claims at the 
regional office level while multi-face claims that have a 
combination of disabilities that require extensive research are 
passed to a tiger team. This would speed the process.
    Another suggestion, solution is to increase outreach 
efforts. Outreach efforts must be expanded in order to reach 
those veterans and dependents that are unaware of their 
benefits and to bring them into the system.
    The National Association of County Veterans Service 
Officers believes that we must do better. Approximately 88 
percent of the veterans not being compensated is more likely 
than not an issue of lack of access or knowledge of available 
services rather than lack of need or some other issue.
    NACVSO supports House Resolution 67 introduced by 
Congressman Mike McIntyre of North Carolina that would allow 
Secretary Nicholson to provide Federal, State, and local grants 
for assistance to State and county veterans service officers to 
enhance outreach to veterans and their dependents.
    We also support House Resolution 1435 introduced by 
Congressman Baca of California which would have a significant 
impact upon existing claims backlog.
    We stand ready to partner with the Veterans Administration 
to bring about a reduction in the backlog and increase the 
outreach efforts to the veterans of our community.
    In conclusion, the bottom line is that the Veterans 
Administration is going to have to rise to the occasion, place 
more personnel to handle the expected large influx of new 
claims and resulting larger inventory or backlog of claims and 
they need a much improved IT.
    Thank you.
    [The prepared statement of Ms. Knowles appears on page 51.]
    Mr. Hall. Thank you very much for your testimony, Ms. 
Knowles.
    And we are going to jump to the middle of the table now to 
Mr. Robinson.
    Welcome.

                STATEMENT OF STEPHEN L. ROBINSON

    Mr. Robinson. Thank you.
    I am going to deviate from my written testimony. It is very 
extensive and well worth the read if you get the opportunity.
    Mr. Hall. Thank you. We were going to try to keep this to 
five minutes approximately. We do have your written testimony 
for the record.
    Mr. Robinson. Thank you.
    Benefits delivery at discharge is the gold standard to 
reduce claims backlog in the Department of Veterans Affairs.
    In 1998, I served in the Office of the Secretary of Defense 
and I used to go around and do briefings about the great things 
that we were doing to make sure we did not repeat the mistakes 
of the first Gulf War.
    One of the things that was recommended at that time was a 
thing called the personal information carrier, a dog-tag sized 
device that you could carry the whole entire medical record on. 
And we went around and briefed that for about three or 4 years 
while I was in the Department of Defense. Never implemented. 
And one of the big problems that we have today is data, data 
from DoD to the VA.
    Now, the discharge process in DoD is broken. That has been 
widely publicized with the stories from Walter Reed. And that 
puts the Department of Veterans Affairs at a disadvantage 
because when the soldier does not get a proper discharge from 
the DoD or does not have the proper medical record or has to go 
out and find witness statements from commanders on the 
battlefield, it creates a situation where the gap from getting 
out and getting care gets wider and wider and wider.
    I am Steve Robinson. I am the Director of Veterans Affairs 
with Veterans for America. And in my position, I meet with 
Iraqi Freedom, Enduring Freedom veterans on a regular basis and 
happen to know pretty much everybody at the table too.
    There is a systematic failure in the DoD and the VA 
programs designed to address their medical needs, to track 
them, and to share information across platforms. As a result, 
we do not have an adequate understanding of what this 
generation needs, what are their unique needs as it involves 
the kinds of battles they are fighting, improved body armor, 
higher survivability, more soldiers that are married leaving 
families behind, 16,000 single mothers. These are all unique 
needs that will have to be identified and programs developed 
around, but currently we do not know because no one has looked 
at what is unique about this war.
    The face of the American soldier has changed since Vietnam, 
but, yet, we are still using a system designed for them. The VA 
needs to come up to the 21st century model, and they are making 
incredible improvements. But, again, I stress that they do not 
know what this generation looks like and what their unique 
needs are.
    More than 155,000 women have served in Iraq and 
Afghanistan. We are creating new female combat veterans in a 
system that was designed for men that came home after World War 
II and trauma nurses. Combat female veterans are a unique 
entity that will need programs and services. Sixteen thousand 
single mothers, as I said.
    Three out of every five deployed servicemembers have family 
responsibilities, spouse, and children. That is an incredibly 
different scenario than when people served in Vietnam. But, 
yet, we are treating them with the exact same system.
    What is happening today is a new chapter in the rule book. 
We have yet to begin to recognize the true needs of the current 
generation and create programs and services for their war-
related problems.
    What do multiple deployments mean? Less than a percent of 
this population is serving the war over and over and over and 
over again. If you can imagine an NFL football player playing 
the Super Bowl every day for 365 days and the kinds of injuries 
that they would sustain, they would not have a long career. And 
it is the same thing with these soldiers that are fighting the 
war over and over. Multiple deployments create unique 
situations, break down the bodies. That needs to be identified.
    We are especially concerned that servicemembers are not 
provided the mental healthcare they need. There is a dramatic 
rise in less than honorable discharges and a subsequent loss of 
VA benefits. That is a DoD problem, but it also impacts the 
Department of Veterans Affairs in their vet centers and in 
people seeking mental healthcare services, trying to get those 
services even though they may have lost them forever.
    There is also an over-use of personality disorders, again a 
DoD problem, but it prevents people from receiving the benefits 
of the VA and it needs strong investigation.
    The Veterans Benefits Administration disability 
compensation claims process can be characterized as either 
completely broken or partially broken depending on how you want 
to look at it. It is completely broken when you are a soldier 
who has honorably served and you have been denied your VA 
benefit. It is completely broken. It is partially broken for 
those who are able to get into the system and then go through 
the wait process, and if they are fortunate enough, survive.
    I see my time is getting close, so I am going to come to 
summary.
    We want to address the problems. We urge the Members of the 
House to consider co-sponsoring House Resolution 1354, the Lane 
Evans ``Health Improvement Act.'' This bill has key components 
in it which collect data which will allow us to know what is 
happening to this generation. It also tracks and trends what is 
happening in this war and it provides mental healthcare in a 
way that we currently do not offer it.
    We owe this generation, Mr. Chairman. We thank you for your 
leadership on taking up these hard issues. They have earned 
what we want to give them. Now let us make sure that we give 
them what they are owed.
    Thank you, sir.
    [The prepared statement of Mr. Robinson appears on page 
53.]
    Mr. Hall. Thank you very much, Mr. Robinson. Thank you for 
your service on active duty and thank you for your service 
since and today.
    We will now hear the testimony of Mr. Van Engelen. And, 
once again, we have your written statement for the record, so 5 
minutes, please.

                 STATEMENT OF BRADY VAN ENGELEN

    Mr. Van Engelen. Chairman Hall, Representative Lamborn, 
Members of the Subcommittee, thank you for the opportunity to 
testify.
    On April 6th, 2004, I sustained a gunshot wound to the head 
in Baghdad while positioned at an observation post. After being 
shot, first aid was immediately administered. I was fortunate 
to survive long enough to make it to the 28th Combat Support 
Hospital.
    The primary repairs and closures for my head were conducted 
while in theater at the 28th CSH. From there, I was medically 
evacuated to a military hospital in Landstuhl, Germany, where I 
stayed for recovery until I had regained enough strength to 
travel back to Walter Reed Army Medical Center to complete the 
recovery process.
    I arrived at Walter Reed Army Medical Center on April 14th, 
2004. I was immediately asked if I wanted to be treated as an 
inpatient or an outpatient. Wanting to spend time with my 
family and loved ones, I chose to be an outpatient.
    At this point, I was given the building number of the 
Malone House and told to go check in. With no clue as to where 
the building was, I hopped onto the facility shuttle and asked 
if I could get a ride to the Malone House to check in.
    The first 2 weeks of appointments, I was fortunate enough 
to have my family and loved ones at my side to assist me 
through the bureaucratic maze that is outpatient care at Walter 
Reed.
    In one month's time, my rehabilitative care was completed 
and I was told the Physical Evaluation Board process would 
begin shortly thereafter. That was May 30, 2004. I did not hear 
back about my case until December of 2004.
    Other than the research that I conducted on my own time, I 
was completely unaware of what my possibilities were and what 
to do next. Throughout the entire process, I was the one who 
always initiated contact with the case managers in the 
hospital. If it were not for my persistence, I would have gone 
unnoticed for months. There were just too many patients and not 
enough case managers to oversee the process.
    The systemic problems exposed at Walter Reed also exist in 
the Department of Veterans Affairs. The VA is overwhelmed by 
the numbers of claims filed and patients needing attendance. We 
did not prepare for this and it is painfully evident. My 
generation is going to have to pay for this and we will be 
paying for years and years.
    While at Walter Reed as an outpatient, there was no 
outreach on behalf of the VA to inform me of my benefits for 
myself and my family.
    When troops were returning from World War II, there were VA 
claims specialists on the boats with the servicemen informing 
them of their benefits that they were eligible for. We have 
lost that aggressive approach with today's servicemembers and 
veterans.
    Today we are being asked to navigate the bureaucratic maze 
of DoD and VA on our own. I can assure you that this is no 
small feat. Shifting the burden from our government to those 
who serve has created a system where servicemembers and 
veterans are unaware of the benefits and programs promised to 
them upon enlistment.
    I understand the VA has begun to more aggressively address 
the inpatients while they are recovering at medical facilities. 
But as the case at Walter Reed, only a small number of injured 
soldiers are benefiting. This is not acceptable.
    Many wounded servicemembers at other medical outpatient 
facilities throughout the country remain as uninformed as I was 
upon leaving the military. Servicemembers from my generation 
are becoming increasingly disenfranchised with the system that 
our government promised would help us to heal and rehabilitate.
    Claims backlogs are currently at 180 days. A few years ago, 
claims were half that. The families of servicemembers are 
suffering from the lack of preparation by our VA. They cannot 
call the bank and say they are waiting for a response on a 
claim and ask for payments to be delayed for another 180 days.
    The passive nature of the VA regarding health and claims 
dispensation will only tarnish their perception amongst the 
military and their families. We may end up with an entire 
generation of veterans who have no faith in our VA because 
those running it as well as those overseeing it were unable to 
uphold their end of the bargain. This saddens me deeply.
    I urge the Members of this Subcommittee to keep one 
question in mind as they work to repair this broken system. 
What is owed to those who serve?
    While I do not claim to have all the answers to this 
question, I am confident that you will conclude that the answer 
is more than servicemembers and veterans are receiving now.
    Thank you.
    [The prepared statement of Mr. Van Engelen appears on page 
57.]
    Mr. Hall. Thank you, Mr. Van Engelen, and thank you for 
your service and for your testimony. And I think we would agree 
with your last statement there at the very least.
    And, Mr. Campbell, would you like to go next?

                 STATEMENT OF PATRICK CAMPBELL

    Mr. Campbell. Thank you so much for allowing me to be here 
and actually thank you for allowing me to sit at a table with 
such fine representatives.
    I, too, want to deviate a little bit. On the Metro ride 
over here, I noticed a guy in a wheelchair kind of laughing how 
late he was to a meeting with a Congressman. I asked him why he 
was going down there, and he said, ``I am a traumatic brain 
injury sufferer.'' Actually, he said, ``I am a traumatic brain 
injury survivor.''
    And I remember thinking that, you know, this whole day we 
are talking about these statistics hundreds of thousands of 
people. And as I am sitting here watching this one person so 
excited to go talk about, you know, some programs on how to 
find soldiers who are suffering from traumatic brain injury, he 
could not even get out, you know, the little gates because he 
could not figure out how to use the system.
    You know, this is a person who used to come here once a 
month, could not even figure out how to put the ticket in the 
machine. And he was yelled at twice by the Metro employees for 
not having enough money on his card when he just honestly did 
not know what was going on.
    So I am sitting here in front of you as one of the 54,000 
OIF and OEF veterans that the VA is guesstimating will use the 
system in 2007.
    Earlier in January when the Department of Veterans Affairs 
presented their budget, they said that 263,000 of their current 
users of their system are OEF and OIF veterans.
    In looking at their budget, there is a general principle 
that a department's proposed budget is a clear signal to the 
outside world of both their priorities and their assumptions.
    When you look at the assumptions the Department of Veterans 
Affairs are making for the next 5 years, it is clear that they 
honestly believe that there will be a drop in VA claims over 
the next 5 years. That is why in 2009, the budget for VA is 
supposed to drop and then it is supposed to stay the same for 
the next 2 years.
    Now, I am not an accountant. I am actually in law school, 
so I am definitely not good with numbers. And I do not want to 
argue with the VA's accountants and actuarial tables. But when 
the numbers seem to defy common sense, our alarms must go off.
    If you remember any one thing from this testimony today 
from me, remember that the VA has grossly underestimated the 
demand for their services once again. The soldiers coming home 
and they will be asking for care. The question we must be 
asking ourselves is, will we be ready for them.
    If anything, the recent Walter Reed expose has taught us is 
that trying to treat and care for soldiers on a limited budget 
and limited oversight only has one logical conclusion: poor 
care.
    In the context of this specific hearing, soldiers are 
languishing while they wait for their claims to be processed 
and woe to the veteran who does not file his or her paperwork 
correctly and gets denied. They will be stuck in bureaucratic 
limbo for years.
    If you think that only 54,000 people, veterans are going to 
ask for help this year and even less in the next years, all you 
are doing is setting yourself up for failure. Soldiers fight 
for their country and they should not be made to fight for 
their benefits when they get home.
    We are all here, you know, all these organizations here and 
Linda, are offering you great statistics and great suggestions. 
And the Iraq and Afghanistan Veterans of America stands behind 
their recommendations.
    My purpose here is just to remind you as clear as I can in 
a single message, that if you start with faulty assumptions, 
you will end up with poor results.
    This Committee must work with the Department of Veterans 
Affairs and us, the Veterans Service Organizations, to 
formulate a realistic number of incoming veterans, not the OMB 
approved number that fits nicely into their balanced budget for 
the next 10 years. Only then will we be able to hire the 
correct number of claim processors and medical staff to provide 
the quality healthcare that these veterans deserve.
    Thank you for allowing me to testify.
    [The prepared statement of Mr. Campbell appears on page 
58.]
    Mr. Hall. Thank you Mr. Campbell for your testimony and for 
your service. And we are here to work with you.
    That is why we are holding these hearings and everybody on 
this Subcommittee, including the members who could not be here 
now because they are in the middle of other work, other 
Committee hearings that are scheduled at the same time, I know 
all agree with our wish to collaborate in coming up with a 
realistic picture and solving the problems in terms of funding.
    We will now hear the testimony of Jon Soltz.
    Mr. Soltz.

                     STATEMENT OF JON SOLTZ

    Mr. Soltz. Sir, I just want to thank everyone here first 
for having us here as well and for you inviting us. And to Mr. 
Lamborn, Congressman Lamborn, thank you. Thank you as well.
    Everyone here was listening. I am obviously an Iraq War 
veteran, served in Iraq in 2003, served in Kosovo in 2000. I am 
still an officer of the United States Army today. I am about to 
hit my 8-year mark.
    You know, obviously my greatest honor is leading soldiers 
in war. I wanted to go to Iraq. The hardest part was coming 
back. I have gone to the VA and sought VA services when I 
returned. I have still got my card right here. I, like many 
others when I left active duty, lost healthcare, so it was the 
place I went.
    I think there has been a lot of great statistics, so I am 
going to deviate from my testimony about obviously some 
personal stories. There are a lot of people that are going to 
use the VA, specifically the Guard and Reserve. When they come 
off active duty, they lose healthcare benefits.
    When I went to the VA, it took me a long time, so I do not 
want you to think that, you know, if the DoD is giving them a 
little questionnaire when they get off their airplane, they are 
going to pay attention to it. It is going to take them 6 to 8 
months, 10 months, sometimes years before they walk in the 
doors of the VA and get help.
    Specifically if they do not have a wound that is 
identifiable immediately for disability like they got their arm 
shot or so forth, that you are going to see more and more 
stress with the disorders that we do not see. Obviously the 
mental disorders.
    My experience was one similar. I heard the professor talk 
about the culture climate. When I went to the VA, it was one of 
the hardest things I ever did. My nurse, she looked at me and 
she said, you know, you came to the right place and she asked 
me why I came. And I came because I was not sleeping right 
after eight months and, you know, it took me less than 20 hours 
to get into combat. And it was something that did not affect me 
when I was there, but affected me when I got back.
    So I went to the VA. You know, I went through the process 
and I took a couple tests and it took me several weeks to get 
in to see a doctor. And, you know, ultimately the VA told me 
that I was just, you know, not adjusting properly.
    And I do not want us to focus so much on the backlog 
specifically. I think there are two broader issues that you all 
should be aware about before we look at systematically fixing 
the backlog. And one is the diagnosis process. And I do not 
think that it is quantifiable and I do not think it is 
consistent with when you talked about why some issues are 
harder than others, it is hard to quantify posttraumatic stress 
disorder.
    And what you are seeing is a lot of soldiers and Marines 
that are going to go through the system and they are going to 
be given adjustment disorder. You know, we know one in three 
are having these kind of issues, but only 12 percent get 
diagnosed with PTSD.
    So the quantification moving from DoD to VA is very 
difficult, and I think that for the first time in this country, 
we have an opportunity to have a real conversation over an 
extended period of time, that we all need to sort of understand 
what I call the yellow brick road. And I think we saw a piece 
of that with the Walter Reed.
    But when a soldier gets wounded like Brady did, he entered 
the system on one side and I entered it on another, but they 
are really going to go through five or six different 
institutions before they settle at the VA or they are going to 
answer at their home duty station and what that process is.
    And if we only look at it from the Veterans 
Administration's side and fixing that piece of it, then we are 
still going to have a tremendous amount of problems watching 
the soldier through the entire system.
    And it is sort of like a school system and right now the 
way we are set up is K through six is one school system and six 
through twelve is another. And if you just look at it that way, 
I am not quite sure we are going to get the answer we need.
    And until we fix the diagnosis inconsistencies, look, there 
is a big reason why people are giving adjustment disorder. How 
do you quantify what PTSD is? What is the quantification 
recommendations that we are making between what the DoD is and 
VA?
    If I brought ten Iraq War veterans in here, and I am more 
than willing to do it, if I brought a psychiatrist from the VA, 
a psychiatrist from DoD, and a private psychiatrist, you are 
going to get three different answers.
    And this is part of why we are getting this backlog, and I 
think we have to look at it from both sides, DoD and VA, and 
then I think you need to look at how we quantify where we are 
going to see the most amount of stress which is the TBI and the 
PTSD because they are not entering the system like Brady did. 
Brady enters the system because he got shot.
    A lot of soldiers, especially Guard and Reservists, one in 
three who served in Iraq are from that component. Because of 
the way we redesignated the force, we cannot deploy without 
them. They are going to enter the system at their home VA 
centers when they return home because they fall out of the DoD 
system.
    So I think that this has to be very broad-based and I think 
that we have to look specifically at how we quantify what these 
illnesses are.
    I do support the recommendation, however, of treating, if 
anyone, we give them the benefit of the doubt to provide them 
support immediately like the IRS. I think that is why we have a 
lot of homeless vets. And at least we are guaranteeing we are 
protecting everybody.
    With that said, my time is up. And thank you guys for 
having me.
    [The prepared statement of Mr. Soltz appears on page 59.]
    Mr. Hall. Thank you, Mr. Soltz. You win the prize for 
stopping before your time was actually up.
    Mr. Soltz. Usually I go over my time, so I wanted to make 
sure I behaved today.
    Mr. Hall. It will not happen often today, I am sure.
    Anyway, I just have a couple of questions. Mr. Robinson, 
you made mention of the number of women who have served in OIF/
OEF. I think it was 155,000.
    Are you aware of any particular instances in which women 
veterans have had a more difficult time with the claims process 
and how might that be approached differently?
    Mr. Robinson. I have not broken out in terms of women 
veterans and the claims process, but one stunning example is 
that Reserve and National Guard soldiers are twice as likely to 
be denied if they file a claim than active-duty soldiers. And I 
do not understand why that is happening.
    Mr. Soltz. Can I say one thing. I think Steve is right on 
that, sir, but I think the point here is that National Guard 
and Reserve soldiers that get wounded in Iraq, they enter the 
system with a prior sort of wound. And if you go home to your 
home duty station and you fall out of the active component 
force, you then become dependent on going to the VA.
    So the National Guard and Reserve soldiers that are 
entering directly through the VA are obviously entering with 
something like PTSD, which is harder to quantify. You cannot 
give them a blood test. You cannot quantify that. And that is 
the systematic issue that Steve is talking about.
    Mr. Robinson. Some of the other issues that we have 
noticed--I do not know if the Committee saw the New York Times 
article on disparities--the cities and towns that send the most 
people to war are the cities and towns where the backlog is the 
greatest. And there was a great New York Times article that was 
written on that just several days ago.
    [The article referenced by Mr. Robinson, ``Veterans Face 
Vast Inequities Over Disability,'' New York Times, March 09, 
2007, by Ian Urbina and Ron Nixon, appears on page 82.]
    Mr. Soltz. May I say one more thing about women----
    Mr. Hall. Yes, please.
    Mr. Robinson [continuing]. To try to answer the question 
you asked? There are no unique programs. They are starting to 
develop unique programs, but there are no unique programs for 
female combat veterans.
    Imagine a female combat veteran in a group therapy session 
trying to discuss sexual intimacy. Imagine her talking about 
not wanting to hold her baby. It is not going to happen in 
front of a bunch of other men.
    So we need to create specialized care programs for the new 
female combat veterans. And there may be unique claims issues 
surrounding that.
    Mr. Hall. Thank you very much.
    I want to ask Ms. Knowles what has been the impact of 
prioritizing OIF/OEF claims on the other claimants waiting to 
be adjudicated?
    Ms. Knowles. Whenever you prioritize and you bring in 
putting new claims over the older claims, we have veterans that 
literally have had claims in there a year, and this is not an 
appeal. This is a regular claim. And they are pushed to the 
back burner. No way saying that the OIF and OEF is not 
important. It is. A veteran is important be it Vietnam, World 
War II, Korea, or our current veteran of Iraq and Afghanistan. 
They are all veterans and they should all be treated the same.
    The impact that we see, and I think it is due to regional 
offices, I think when your regional office has that priority 
that they are following the guidelines and do not take the 
common sense approach and look at those that are already a year 
old, that is how we see the impact.
    And about the numbers earlier, when they were saying that 
the 1,000 new employees, it will take 2,000 new employees 
because the 400 the President is talking about are retiring, 
people that are going to retire. It will take 2,000 new 
employees to put in the regional offices to handle the claims 
that they have now and will have in the very near future.
    Mr. Hall. Thank you.
    And one last question. This could go to anybody. There have 
been in previous wars extended illnesses, for example, that 
came up due to exposure to Agent Orange from Vietnam. I have a 
close family member of mine who just underwent prostate surgery 
for--well, we do not know for sure, but it is one of the things 
that has been known to be caused by Agent Orange, and a 
gentleman from my district, the veteran I spoke about before 
who is dealing with prostate cancer also.
    Gulf War syndrome, I am not sure if the verdict really is 
in on it. Is it depleted uranium? You know, there can be 
exposures that show up 20, 30 years later due to these things.
    Are any of you expecting or seeing already a similar kind 
of long-term problem that may crop up in the distant future?
    Mr. Robinson. I would like to start because I just came off 
of the VA Research Advisory Committee on Gulf War veterans' 
illnesses, so I am pretty familiar with it.
    There are things that are occurring on the battlefield that 
are things we are doing to ourselves. There are things that 
need serious investigation and have not yet been fully 
investigated that servicemembers on this battlefield are facing 
that veterans from the first Gulf War faced.
    The drug Mefloquine Lariam, DoD stood up a task force to 
investigate whether or not that drug was a neurotoxin and 
harming people. The Armed Forces Epidemiological Board never 
completed its work. The Anthrax vaccine, depleted uranium 
screening. What we have learned from the mistakes of the first 
Gulf War are that a lot of times we do things to ourselves that 
were unintentional or perhaps not really scientifically 
validated before we did it.
    But we do not see any, at this point, any strange or unique 
thing happening except people coming home with exposures to, 
you know, the things that happen on the battlefield that make 
people sick.
    As you mentioned, Agent Orange is now a presumptive service 
connection for the disease that you are speaking about and it 
came about because people did scientific work and initially it 
was poo-pooed. People did scientific work and they discovered 
the connection.
    There are going to be connections to things that soldiers 
used on the battlefield in the future or that science is now 
looking at that are going to be presumptively connected to 
their service in this war. But right now we see no giant 
epidemiological trend like we did in the first Gulf War, 
primarily because in the first Gulf War, we blew up the 
majority of all chemical warfare agents on the battlefield in 
the pre-war, during-war, and post-war bombing phase.
    Mr. Soltz. Sir, we have a lady, a woman who I work with 
very closely. Her son, he committed suicide. He blew his brains 
out with his weapon. And she to this day, you know, talks about 
her own personal studies in regards to Lariam. He was a Marine 
Corps officer and, you know, it is her specific interest.
    And I would agree with Steve. We have not seen a large 
trend like Gulf War syndrome or Agent Orange in effect, but 
there are individual cases out there. You know, in Iraq, there 
is a mystery ammonia, lice meiosis, some very different things, 
but----
    Mr. Robinson. There is a huge cancer, rapid onset cancer. 
We are seeing it at Fort Carson, Colorado, sir. There are a 
couple of people that have died. There is rapid onset cancer 
that kills them. We do not know what it is, but it needs to be 
investigated.
    Mr. Soltz. Yeah. Just like in theater, we had this ammonia 
where soldiers were dying immediately in theater. But the 
Lariam is something I would take specific attention of 
considering there are people that claim that it causes 
psychological problems and can be the cause of suicide. We see 
a lot of suicide in theater.
    Mr. Campbell. If I could just add one more thing. This is 
not nearly as dramatic, but I think we are going to be seeing a 
lot of people with back injuries from all this body armor that 
we are putting on people.
    You cannot wear 60, 70 pounds of armor every day for 365 
days, you know, two or three tours without 10 years, 15 years 
down line, people's backs and knees and shoulders and 
everything. You know, it is not as dramatic, but I am telling 
you all my soldiers are already starting to suffer their 
problems, and they are only in their twenties. You know, 20 
years down the line, they are going to be coming to the VA.
    Mr. Hall. Thank you very much.
    I am going to remind our Members that we have a first vote 
expected at 12:20, so we will try to move the questions along.
    Ranking Member Lamborn.
    Mr. Lamborn. Thank you, Mr. Chairman. And I just have one 
question.
    But first I want to thank all of you for coming here today 
and helping put a personal face on these issues that we are 
looking at. So thank you.
    Mr. Robinson, a question for you in particular. You had 
some really good suggestions on clearing up the backlog. Of 
those suggestions, if you could just implement one of them 
right off the bat, if we cannot do all, which one would you 
single out?
    Mr. Robinson. Fix the DoD discharge process because it is 
going to make the VA backlog disappear. Benefits Delivery at 
Discharge is the gold standard along with other 
recommendations. You are inheriting a problem because they are 
not doing their job.
    Mr. Lamborn. Okay. Thank you.
    Mr. Hall. Thank you for yielding back. I assume you do.
    Mr. Lamborn. I do.
    Mr. Hall. Mr. Hare.
    Mr. Hare. Well, first of all, thank you all for your 
service and thanks for taking the time to come here today. And, 
again, it never ceases to amaze me how we are quick to put 
people in harm's way and very slow to help them when they need 
help the most.
    I know, if I could, Mr. Campbell, I know you were 
speculating we were going to have some people testify. But in 
your opinion, why do you think the VA is anticipating a drop in 
claims that you were talking about, and I think you said they 
were grossly underestimating? What are they using for criteria, 
do you think? I mean, I know we will ask later, but I am just 
wondering from your end.
    Mr. Campbell. Well, I think it has to do with budget 
numbers. I mean, you have--we want to balance the budget. You 
know, this whole debate is about paying for the full cost of 
the war. And when you are trying to balance a budget without 
raising taxes and fighting two wars at the same time, you know, 
you have to kind of cross your fingers and hope and pray that 
certain things are going to happen.
    And, you know, the administration wanted a budget that is 
going to look balanced in 2 years, 3 years, 4 years down the 
line and, you know, that is one of the ways to do it. And it is 
just not going to happen. You cannot have a VA budget that 
stagnates or decreases when you are just starting to see the 
claims begin. I mean, there is no way to get around it.
    The budget needs to increase with the increased demand. And 
unless you are planning on cutting services or hoping a whole 
bunch of World War II veterans are going to die in the next 
couple years, you know, it is not going to happen.
    So the assumption has to be that there are not going to be 
any more claims. Like I said, I am not a statistician, but it 
does not pass the test.
    Mr. Hare. I do not think you have to, Mr. Campbell. I think 
being realistic, I think we clearly know that there is going to 
be an increase and not a decrease.
    Mr. Van Engelen, I just had a question for you. When you 
were in Walter Reed and experiencing this transition between 
the DoD healthcare to the VA, from your experience, what 
recommendations would you give to us to improve the transition 
from the whole VA disability claims process? I mean, as I 
understand it, you said it was 7 months that you were----
    Mr. Van Engelen. That was the discharge process from the 
DoD aspect of it. On addressing the issue of them informing, 
keeping me informed of what I should know, I was at Walter 
Reed, so, you know, there were some people there that were in a 
similar situation that could brief me on this stuff.
    Mr. Hare. But you said you initiated the contact with the 
case managers.
    Mr. Van Engelen. That is correct.
    Mr. Hare. And basically you were working for yourself in 
this process. And I guess what I am asking you is, for those 
people who may not be able to do that or do not do that, what 
do we need to do better? I mean, clearly this has got to get 
fixed.
    Mr. Van Engelen. I agree. It does need to get fixed. I 
think that they need to be much more aggressive. I think they 
need to have people on the field literally out there pounding 
pavement at Walter Reed and all the medical installations, 
talking with family Members.
    I know that General Waitman, when he was in command at 
Walter Reed, he had town halls. That would be a great place to 
send the VA representative and just have them sit there and 
say, look, I want everyone that is within timeframe of being 
discharged to come talk to me. I am going to give you a general 
spiel and then we will work some stuff out from there. But this 
is not an outpatient facility more or less.
    I have a friend who is at Fort Richardson in Alaska. He has 
no idea of what the VA has to offer and what benefits he can 
get. And he is 6 days from ETS.
    Mr. Hare. And he has no idea?
    Mr. Van Engelen. No idea. He is a college educated 
individual, sir. It is just part of the process. There is no 
one up there to help these guys. They just came back from Iraq 
and they are all getting ready to ETS and there is no one there 
to inform them of what there is out there for them to get.
    Mr. Hare. Amazing. Sad, but amazing.
    Ms. Knowles, just one quick question. You said of those 400 
and some people that they are talking about adding 1,000 and I 
think you said you would need like 2,000, do you see if we can 
up those numbers significantly that this is going to help in 
the processing of the claims and help our vets out?
    I know that the Professor testified that training these new 
people is going to be a problem because you have got to train 
them and get them up to speed and that could take up to a year, 
I think she was talking about, or longer.
    So if we do get the new people, which, by the way, I think 
we should do more than we are going to do or thinking of doing 
what is the fix here from your perspective for us?
    Ms. Knowles. From a person who sits across the desk and 
files a claim daily, that is my job, I sit across the desk 
every day and file the claims, when we submit it to the 
regional office, it stagnates. They do not have adjudicators, 
enough adjudicators, and the ones they have, she is absolutely 
right, they are brand new on the job. The decisions they make 
are wrong decisions and we have to go back with a 
reconsideration.
    We know there are going to be people retiring. We have to 
start somewhere. That is the reason we need to go ahead and put 
employees there to start training them. We still have another 
bad 5 years before we are going to see the backlog really come 
down because we have got to have people there to do the job.
    Now, County Service Officers, the State Service Officers 
are doing the legwork on the outside. We are gathering the 
information and presenting it. That is why we have tried to 
work with the VA for years. Give us your check list of what you 
need. We will make sure you get it so that even a brand new 
adjudicator can do their job, a new rater can do their job.
    Mr. Hare. Thank you all very much.
    Mr. Hall. Thank you, Mr. Hare.
    Thank you, our panel. Thank you for your service continuing 
and in the past, and you have been a great enlightenment to us.
    I am going to ask Mr. Hare if you would sit in the Chair 
for a moment.
    Mr. Hare. I would.
    Mr. Hall. Thank you.
    Mr. Hare [presiding]. If we can call our last panel, I 
think Mr. Ronald Aument.
    Thank you, Mr. Secretary, for coming to visit with us this 
afternoon, and we will go ahead and start with your testimony.

   STATEMENT OF RONALD R. AUMENT, DEPUTY UNDER SECRETARY FOR 
BENEFITS, VETERANS BENEFITS ADMINISTRATION, U.S. DEPARTMENT OF 
  VETERANS AFFAIRS; ACCOMPANIED BY MICHAEL WALCOFF, ASSOCIATE 
DEPUTY UNDER SECRETARY FOR FIELD OPERATIONS, VETERANS BENEFITS 
      ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS

    Mr. Aument. Thank you, Mr. Chairman.
    Mr. Hare. You are welcome.
    Mr. Aument. Mr. Chairman and Members of the Subcommittee, 
it is my pleasure to be here to discuss the Disability 
Compensation Program and our efforts to meet the needs of 
servicemembers and veterans of Operations Iraqi and Enduring 
Freedom.
    I am accompanied today by Mr. Michael Walcoff, VBA's 
Associate Deputy Under Secretary for Field Operations.
    The Veterans Benefits Administration is responsible for 
administering a wide range of benefits and services for 
veterans, their families, and their survivors.
    At the heart of our mission is the Disability Compensation 
Program. Last year, we provided veterans with decisions on over 
774,000 disability claims and performed more than 1.3 million 
other award actions and benefits adjustments for beneficiaries 
already on our rolls.
    Additionally, we handled over 6.6 million phone calls, 
conducted over a million interviews, briefed more than 390,000 
service persons, and conducted nearly 65,000 hours of outreach.
    Today I will discuss the challenges we face in providing 
timely, accurate, and consistent determinations on veterans' 
claims for disability compensation. I will also discuss some of 
the actions we are taking to improve claims processing and 
expedite the process of the claims from Operations Iraqi and 
Enduring Freedom of veterans.
    VBA is engaged in numerous initiatives aimed at better 
managing the disability claims workload and providing benefits 
processing. The efforts include changes to the organization and 
structure of the veterans service center, delivery of training, 
consolidation of specialized operations, and redistribution of 
workload.
    The implementation of the claims processing improvement 
initiative, CPI model established a consistent organizational 
structure across all of our regional offices. Work processes 
were reengineered and specialized teams established to reduce 
the number of tasks performed by individual decisionmakers, 
establish consistency in work flow and process, and incorporate 
a triage approach to incoming claims. Implementation of this 
model provided a strong foundation for improving both the 
accuracy and consistency of our claims processing.
    We also established an aggressive and comprehensive program 
of quality assurance and oversight to assess compliance of VBA 
claims processing, policy, and procedures, and assure 
consistent application. As a result of these efforts, our 
quality has risen over the last 4 years from 81 percent to 89 
percent.
    VBA has deployed new training tools and centralized 
training programs that support accurate and consistent 
decisionmaking. New hires receive comprehensive training and a 
consistent foundation in claims processing principles through a 
national centralized training program, and local training is 
provided utilizing a standard curriculum.
    Standardized computer-based tools have been developed and 
training letters and satellite broadcasts are provided to the 
field on the proper approach to rating complex issues.
    In addition, the mandatory cycle of training for all 
veterans service center employees has been developed consisting 
of an 80-hour annual curriculum.
    The consolidation of specialized processing operations for 
certain types of claims has been implemented to provide better 
and more consistent decisions, and we continue to look for ways 
to achieve additional organizational efficiencies through 
further consolidation.
    Some of our efforts include the establishment of pension 
maintenance centers, the tiger team, the appeals management 
center, and the casualty assistance unit. We are exploring the 
centralization of all pension adjudications in these centers.
    VBA also established two development centers in Phoenix and 
Roanoke and centralized the processing of all radiation claims 
to the Jackson regional office.
    The Benefits Delivery at Discharge Program provides 
servicemembers with briefings on VA benefits, assistance with 
completing applications, and a disability examination before 
leaving service. Through the BDD Program, a servicemember can 
file a pre-discharge claim while on active duty.
    These claims are received at one of our designated BDD 
intake sites and processed through the BDD Program. In order 
for a claim to be processed as a BDD claim, servicemembers must 
have 60 to 180 days remaining on active duty and must be 
available for all required examinations at the local intake 
site. The goal of this program is to deliver benefits within 60 
days following discharge.
    VBA has consolidated the rating aspects of our BDD Program 
which will bring greater consistency of decisions on claims 
filed by newly separated veterans.
    VBA is aggressively pursuing measures to decrease the 
volume of pending disability claims and shorten the time 
veterans must wait for decisions on their claims.
    We began aggressively hiring additional staff in fiscal 
year 2006, increasing our on-board strength by over 580 
employees between January 2006 and January 2007.
    We will continue to accelerate hiring and fund additional 
training programs this fiscal year and then maintain staffing 
at maximum levels based upon funding received in 2008 and 
following.
    We are recruiting now to increase our on-board strength by 
an additional 400 employees by the end of June. We have also 
increased overtime funding this year and recruited retired 
claims processors to return to work as reemployed in order to 
increase decision output.
    VBA implemented the brokering strategy in which rating 
cases are sent from stations of high inventories to other 
stations with the capacity to process additional rating work. 
Brokering allows the organization to address simultaneously the 
local and national backlog issues by maximizing the use of 
available resources.
    Since the onset of combat operations in Iraq and 
Afghanistan, VA has provided expedited and case managed 
services for all seriously injured Operations Iraqi and 
Enduring Freedom veterans and their families.
    VA assigns special benefits counselors, social workers, and 
case managers to work with these servicemembers and their 
families throughout the transition to VA care and benefit 
systems and to ensure expedited delivery of all benefits.
    Last month, the Secretary of Veterans Affairs announced a 
new initiative to provide priority processing of all OIF/OEF 
veterans' disability claims. This initiative covers all active 
duty, National Guard, and Reserve veterans who were deployed to 
or in support of the OIF/OEF combat operations as identified by 
the Department of Defense.
    This initiative will assist these veterans to enter the VA 
system and begin receiving disability benefits as soon as 
possible after separation. We have designated our two 
development centers in Roanoke and Phoenix and three of our 
resource centers as special tiger team resources for processing 
OIF/OEF claims.
    The development centers will obtain the evidence needed to 
properly develop the OIF/OEF claims and the resource centers 
will rate OIF/OEF claims for regional offices with the heaviest 
workloads. Medical examinations needed to support these claims 
are also being expedited.
    We are expanding our outreach programs for National Guard 
and Reserve components and our participation in OIF/OEF 
community events and other information dissemination 
activities.
    An OIF/OEF team is being established at VBA headquarters to 
address all operational and outreach issues at the national 
level to include the coordination of a national memorandum of 
understanding with each of the Reserve components.
    The MOUs will ensure that VA is provided service medical 
records and notified of when and where Reserve Members are 
available to be briefed during the demobilization process and 
at later times.
    We will work with DoD to discuss the possibility of 
expanding VA's role and VA's military preseparation process. 
Specifically we will assess the feasibility of providing a new 
claims workshop where groups of servicemembers would be 
instructed on how to complete the general portions of the VA 
application forms. Personal interviews would be conducted at 
the end of the workshop with those applying for benefits.
    Mr. Chairman, this concludes my testimony. I appreciate 
being here today and look forward to answering your questions.
    [The prepared statement of Mr. Aument appears on page 61.]
    Mr. Hall. Thank you very much for your testimony, Mr. 
Aument, is it?
    Mr. Aument. That is correct.
    Mr. Hall. What percentage of the current claims backlog 
would you say is made up of OIF/OEF veterans?
    Mr. Aument. Of the currently pending claims workload? 
Around 10 percent.
    Mr. Hall. And what are your projected casualties for OIF/
OEF and also how many of those veterans do you anticipate will 
file a claim with VBA?
    Mr. Aument. We do not project casualties. What we do is 
project claims workload based upon prior experience. Our 
projection models, we use one both for projecting the mandatory 
account spending as well as for the claims workload, have been 
in use for some time now and they rely primarily upon prior 
years' experience being adjusted based on the most recent 
experience.
    Mr. Hall. I was wondering if you had the opportunity to 
read Professor Bilmes' paper and, if so, what your thoughts are 
on her conclusions.
    Mr. Aument. Yes, I have. I have read her earlier work 
together with Professor Stiglitz's that was published earlier. 
I found it very interesting. They obviously involved a lot of 
research. There are many points I certainly could agree with. 
Others, I am not so certain I agree with.
    I certainly agree with some of her over-arching 
observations in listening to her testimony today. One is that 
the disability compensation system is extremely complex. I 
believe that is probably one of the most confounding hurdles 
that we all face, those of us who are charged with 
administering the program, as well as those who come to us for 
support.
    Of her recommendations, I do not know that she touched upon 
it today so much, but in her most recent paper, one of the 
recommendations I was very intrigued by, and wholeheartedly 
endorse, was the idea of modernizing many of our systems to 
include the use of more electronic information within our 
systems to include imaging and systems that much like that, 
parallel those that are used in private industry.
    Mr. Hall. I think she is writing her third paper right now.
    Mr. Aument. I see.
    Mr. Hall. I was wondering how you might explain the 10 
percent discrepancy between ratings approved for active-duty 
servicemembers as opposed to those in the Guard and Reserves.
    Mr. Aument. I certainly do not have a full explanation. I 
can put forth a couple of theories on this.
    We are about to release, I expect later this month or early 
next month, a study that was performed by the Institute for 
Defense Analyses that we contracted with about a year ago 
following some of the controversy over consistency and interest 
in the fact that we had inconsistencies from office to office.
    They have a number of very interesting findings. One that I 
find most compelling for this issue is that a military retiree 
is four times more likely to be receiving disability 
compensation than a non-retiree. Many of the Guardsmen and 
Reservists, quite frankly, unless they have been injured in the 
past while they are on active duty for training, typically were 
not eligible for VA benefits. So they are only becoming more 
eligible because of the mobilization periods that they have 
gone through.
    They spend considerably less time on active duty than an 
active-duty servicemember does. We believe that there is some 
rationale that would connect those two facts.
    One of the things that we are discussing is going back to 
the Institute for Defense Analyses and having them examine this 
very issue to try to give us greater insight as to what might 
be driving some of those discrepancies.
    Mr. Hall. Back to Professor Bilmes, she was invited by a VA 
health economist, Dr. Todd Wagner, to present her studies to 
all the VA health economists. This was scheduled, but the VA 
headquarters canceled it the day before it was to take place.
    I am just curious if you were aware of that or maybe we 
could find out why and whether it could be rescheduled.
    Mr. Aument. I will certainly take that back. I was not 
aware of this at all, but I will certainly take that back.
    Mr. Hall. That would be good.
    And of the 57 regional offices of VBA, 54 of them received 
an outstanding rating. I was wondering how that could happen 
with a backlog of 600,000 cases. I mean, I understand there is 
a lot of good work going on in the VA. Nobody says that there 
is not. I know plenty of people who have been treated and are 
happy with their treatment. It is the numbers that are adding 
up to accentuate the negative at this point. And so I am just 
curious how we get 54 of 57 regional offices being judged 
outstanding.
    Mr. Aument. We typically do not really judge the regional 
office. Are you speaking about the Directors of the regional 
offices, their performance evaluation?
    Mr. Hall. Yes. That is correct.
    Mr. Aument. I am not sure we agree with that number. I will 
ask Mr. Walcoff to address that.
    Mr. Walcoff. I am the rating official for all of our 
regional office directors, and I do not have the exact number, 
but I will tell you that the number rated outstanding was 
probably somewhere around 15. It was nowhere near 54.
    Mr. Hall. Okay. Well, glad to hear my information was 
wrong.
    I have exhausted my time. Mr. Lamborn, you are next.
    Mr. Lamborn. Thank you, Mr. Chairman.
    Mr. Aument, in shortening the time for a claim to be 
decided, there are certain administrative challenges that you 
face. What are some of these and how do you think we could 
streamline these administrative issues so that we can get the 
adjudications done faster?
    Mr. Aument. There truly are, Congressman Lamborn. Probably 
the very first one that we encounter is assuring that we have 
the background records necessary to perform an accurate review 
of the claim.
    Typically that means that we need to have, more often than 
not, the veteran's service medical records in hand before we 
can actually fairly evaluate the claim. Often cases come to us 
without those service medical records.
    That is one of the reasons why the Benefits Delivery at 
Discharge Program is a good model to follow, because we are 
able to overcome that initial bureaucratic hurdle while the 
servicemember is still on active duty.
    Secondly, most cases that come to us require some form of 
physical evaluation. That typically is going to add anywhere 
from 35 to 50 days on the front end of the evaluation process, 
particularly if specialty examinations are required.
    General medical examinations are difficult enough to 
arrange, but when you need specialist examinations, orthopedic 
specialists, audiologists, those types of examinations, that 
can lengthen the delays.
    Then also there are some built-in due process 
considerations that are there for the protection of the 
veterans that were enacted, I think, certainly in the best 
interest of the veteran, through the ``Veterans Claims 
Assistance Act.'' But they clearly do add to the cycle time for 
the processing of a typical claim.
    Today when we believe that we have all the evidence finally 
gathered that is needed to rate a claim, we have to inform the 
veterans that we are preparing to rate their claims and we have 
to give them 60 days to tell us whether or not they have any 
additional evidence they want us to consider in that rating.
    If we do not hear back from that veteran, we have to wait 
for that 60 days to expire before we can proceed to rate the 
claim, which is often the case.
    So there are some built-in wait states to today's claims 
process that, if left unchanged, we believe, under the best of 
circumstances, will compel us to take around 125 days on 
average to rate a claim.
    Mr. Lamborn. Mr. Aument, you referred to that 60-day 
waiting period. I believe that that is waivable. But how good 
of a job are you doing to let the claimant know that that is 
waivable and the claim could be expedited if they have no 
reason to ask for it and they want to waive it?
    Mr. Aument. Absolutely, it is waivable. We do inform the 
veteran that it can be waived. We are working with the Veterans 
Service Organizations. When a service organization is 
representing a veteran, quite often they can be helpful in 
obtaining that waiver from them.
    In other cases, and unfortunately some of our offices are 
more challenged than others by their pending workload, they are 
less able to do this, but we do encourage attempts by our 
claims processors to reach the veteran by telephone because we 
can obtain waivers by telephone. That is legally acceptable as 
long as we document the record.
    So we do that wherever we can. But we operate normally 
during normal business hours and, quite frankly, most veterans 
are working during that period of time. So sometimes contacting 
them can be challenging.
    Mr. Lamborn. Thank you.
    And I yield back my time.
    Mr. Hall. I want to thank you, Mr. Aument, Mr. Walcoff. I 
thank all Members of all the three panels.
    It has been a very educational day. We seem to be learning 
a lot about our system and how we can better serve those who 
defend our country and fight on our behalf when they come home.
    And we will follow-up with more questions as they occur to 
us and hope that together we can find the solutions to reduce 
this waiting time and provide the same shock and awe in terms 
of treatment that we do in terms of initiating combat.
    I think that, you know, if we are capable of being prompt 
and accurate in the way that we deploy and utilize our Armed 
Forces, that we should attempt to be and get closer to being 
that prompt and that accurate and that immediate, especially 
when the injuries or diseases that they face are so immediate 
to them and their families.
    And I appreciate your contributing to our understanding of 
this.
    Thank you, Mr. Lamborn. Thank you, Counsel and staff, for 
the Members who were here. And the hearing is now adjourned.
    [Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]



                            A P P E N D I X

                              ----------                              

Opening Statement of the Honorable John J. Hall, Chairman, Subcommittee 
             on Disability Assistance and Memorial Affairs
    Thank you all for coming today. I am pleased that so many folks 
could attend this oversight hearing on the ``Impact of OIF/OEF on the 
VA Claims Process.''
    Regardless of whether or not you agree or disagree with the war in 
Iraq, I think most--if not all--Members of Congress believe that our 
young men and women who served in OIF/OEF deserve the best medical care 
and all the help we can give them in transitioning from military to 
civilian life. Nothing bothers me more than those who say they support 
the troops, but turn a cold shoulder when those same troops return home 
and become veterans.
    The purpose of today's hearing is to ensure that the problems 
discovered at Walter Reed Army Medical Center are not the tip of the 
iceberg with respect to how prepared we are for our returning 
servicemembers. Since the jurisdiction of this Subcommittee is not 
veterans' healthcare, but veterans' benefits, we are going to focus on 
the VA's claims process and how it has been impacted by OIF/OEF. 
However, as an aside, I would like to say that I am sponsoring a bill 
to allow Active Duty servicemembers the option of receiving medical 
treatment at their local VA hospital if they so desire.
    In addition to looking at whether the VA is equipped to handle the 
claims of returning servicemembers, this hearing will also examine 
reports of rating discrepancies among Active and Reserve veterans. 
Recently, media reports stated that Reserve and National Guard 
servicemembers had a greater risk of their claims being denied or 
lowered than their Active Duty counterparts. I don't think there should 
be a Reserve/Active Duty distinction with respect to a veteran who 
suffers an injury.
    In determining whether the VA claims' system can handle the influx 
of returning OIF/OEF servicemembers, we will hear from GAO who will 
discuss the current claims backlog and possible solutions to fix the 
problem. As most know, the VA has had a claims backlog for many years 
now and it only continues to grow.
    At last count, the average wait to have a VA claim processed, had 
grown from 2 months to 6 months, and even much longer in some areas of 
the country. From December 2000 to March 2007, the backlog of 
compensation claims grew from 363,412 to 632,140.
    Next, we will hear from Professor Linda Bilmes who has written a 
widely acclaimed paper entitled, ``The Long Term Costs of Providing 
Veterans Medical Care and Disability Benefits.'' I will be most 
interested to learn whether or not Professor Bilmes expects the rate of 
OIF/OEF claims to grow significantly. Furthermore, I want to hear her 
thoughts about how the DoD and VA define the term ``casualty.''
    After Professor Bilmes, we will hear from three veterans' 
organizations: (1) Veterans for America; (2) Iraq and Afghanistan; and 
(3) VoteVets. I want to hear their assessment of how the VA is handling 
the claims of returning OIF/OEF veterans. Finally, we will hear from 
the Veteran Benefits Administration, which has the Herculean task of 
ensuring that our veterans receive the benefits they deserve. I am 
specifically interested in learning more about the VA's new priority 
processing for OIF/OEF veterans which was recently instituted. Also, I 
want to know about the VA's projection for future OIF/OEF claims. 
Specifically, I want to understand how they can predict an actual 
decrease in the number of claims in 2007 and 2008 in light of the 
President's escalation of the Iraq War.
    As I stated earlier, I am concerned about an overall lack of 
preparedness by this Administration with respect to the War in Iraq, 
whether it be insufficient body armor or inadequate housing at Walter 
Reed. The cost for caring for our veterans must be understood by 
Congress and the Administration as an ongoing cost of war--veterans 
shouldn't suffer because of poor planning.
    One only has to read the March 5, 2007 edition of Newsweek, which I 
will be introducing into the record, to see how some returning OIF/OEF 
veterans are falling through the cracks. On page 33, there is a story 
about Patrick Feges who was wounded in October 2004 and had to wait 17 
months until his first VA disability check arrived. His mother, an 
elementary schoolteacher, took a second job at McDonalds to help 
support him. Mr. Feges' claim was only approved after Newsweek and the 
Veterans for America began looking into his case. I thank both for 
their work.
    I am holding this hearing today to see if Mr. Feges 17 month delay 
is an anomaly or evidence of a systemic problem for returning OIF/OEF 
veterans. If it is the latter, I would be interested in hearing any and 
all recommendations from the speakers today on how we can fix the 
problem. 6 months, not to mention 17 months, can be devastating to a 
person who is rated unemployable and is without any other means of 
support.

                                 
  Opening Statement of the Honorable Doug Lamborn, Ranking Republican 
   Member, Subcommittee on Disability Assistance and Memorial Affairs
    Thank you Mr. Chairman for recognizing me. I thank you for holding 
this hearing on the claims backlog and how it will affect the returning 
servicemembers from the global war on terror.
    Before I begin, I would like to offer my congratulations to you Mr. 
Hall, for your appointment as chairman of this Subcommittee. I look 
forward to working with you in a bipartisan fashion as we fulfill our 
number-one priority--doing what is right for our veterans and our 
Nation.
    Today we are here to talk about the effect of OIF and OEF veterans 
on the VA claims process.
    I am more concerned about the effect of the VA claims process on 
these wonderful veterans.
    Since the beginning of Operation Enduring Freedom, more than 
150,000 claims have been filed by OIF and OEF veterans. In part, this 
is a positive response to VA's increased outreach, but now we have a 
responsibility to process those claims and care for these veterans.
    I believe the first step toward improvement for these veterans is 
to improve the overall VA claims processing system. The backlog of 
compensation and pension claims is over 632,000--about 15,000 more than 
a month ago, according to VA's own weekly report.
    VA has set a goal to decide a given claim in an average of 125 
days. While more than 4 months strains the meaning of the word 
``prompt,'' it is not unreasonable, given the complexity and demands of 
the Veterans Claims Assistance Act and other administrative 
requirements.
    Now we need VA to ``just do it.''
    I know that we in Congress bear some responsibly for all this 
complexity. I look forward to asking Mr. Aument what we could do to 
help improve the bureaucratic process, while safeguarding it for 
veterans.
    Mr. Chairman, both the budget views and estimates from the 
Committee's majority and the minority recommend 1,000 new hires for VBA 
over the President's request for 457 new compensation and pension 
staff. In 2 years, when they are all hired and trained, they will 
indeed make a difference.
    The conventional approach of increased hiring is entirely 
appropriate; VBA has over the past several years experienced personnel 
shortages.
    We must also explore some innovative ways to tackle this challenge 
that may even have faster payoffs than new hires.
    That is why Committee Republicans this year have recommended 
funding for innovative pilot programs to address the backlog.
    We have recommended funding for a pilot program to explore the 
feasibility of intergovernmental and VSO partnerships with VA in the 
development of compensation and pension claims.
    This pilot would build on positive findings from a 2002 project 
conducted between VA's Buffalo, New York, regional office and the New 
York State Division of Veterans Affairs.
    Within 6 months of their collaboration, the state veterans' 
division was developing claims in partnership with VA. Decisions for 
the region's veterans came faster and accuracy improved. This sort of 
innovation holds great promise.
    Access to Veterans Benefits Administration regional offices can be 
difficult for many veterans. That is why we also recommended funding a 
pilot program for mobile claims offices.
    VBA staff members in mobile offices would provide outreach, help 
veterans file their claims, and gather ``ombudsman'' feedback and 
resolution for veterans.
    Mobile offices helping veterans with their claims could speed up 
the claims process by improving communication and access for veterans.
    To take advantage of the potential offered by technology, we 
recommend funding to explore a rules-based adjudication system. 
Software could potentially decide simple claims accurately, quickly, 
and consistently, so that developers can focus on the complex ones.
    For our newest veterans returning from Afghanistan, Iraq, and 
elsewhere in this global war, we must achieve a seamless transition 
from the military into the VA system. It is apparent to me that a 
seamless transition will help erase that backlog, because it increases 
the system's overall efficiency.
    We need fully interoperable electronic health records between VA 
and DoD, an electronic DD Form 214, military separation physicals that 
can also function as VA disability physicals, and a disability rating 
process that provides consistent ratings.
    What good is a separation exam and health records from DoD if the 
veteran has to repeat the whole process over again with VA?
    Mr. Chairman, I am sure you agree, no veteran should have to wait 6 
months or a year for their claim to be decided--and then endure an 
appeal that adds another year or two. For some veterans, this is not 
mere inconvenience; it is financial and potentially emotional disaster.
    Every one of these claims is an American veteran and his or her 
family awaiting a decision. Every veteran deserves to have their claim 
adjudicated quickly and accurately!
    One thing is certain. If we do not fix this problem now, our legacy 
will be an intolerable backlog regrettably endured by this generation 
of veterans, and inexcusably bequeathed to a future generation.
    I firmly believe no one in this room wants such an outcome.
    I want to thank the witnesses for their service and their 
testimony, and I look forward to our discussion today.
    Mr. Chairman, I yield back.

                                 
Statement of Daniel Bertoni, Acting Director, Education, Workforce, and 
     Income Security Issues, U.S. Government Accountability Office
    Mr. Chairman and Members of the Subcommittee:
    I am pleased to have the opportunity to comment on the claims 
processing challenges and opportunities facing the Department of 
Veterans Affairs' (VA) disability compensation and pension programs. 
Through these programs, VA provided about $34.5 billion in cash 
disability benefits to more than 3.5 million veterans and their 
survivors in fiscal year 2006. For years, the claims process has been 
the subject of concern and attention by VA, the Congress, and veterans 
service organizations, due in large part because of long waits for 
decisions and large claims backlogs. Veterans of the conflicts in Iraq 
and Afghanistan, and survivors of servicemembers who have died in those 
conflicts, are facing these same issues as they seek VA disability 
benefits. In January 2003, we designated modernizing VA and other 
Federal disability programs as a high-risk area, because of these 
service delivery challenges, and because our work over the past decade 
has found that these programs are based on outmoded concepts from the 
past.
    You asked us to discuss VA's disability claims process, in light of 
the ongoing conflicts in Iraq and Afghanistan. My statement draws on a 
number of prior GAO reports and testimonies, (see related GAO 
products), and information we have updated to reflect the current 
status of VA claims processing and initiatives.
    In summary, VA continues to face challenges in improving service 
delivery to veterans. Between fiscal years 2003 and 2006, the inventory 
of rating-related claims grew by almost half to a total of about 
378,000, in part because of increased filing of claims, including those 
filed by veterans of the Iraq and Afghanistan conflicts.\1\ During the 
same period, the average number of days these claims were pending 
increased by 16 days, to an average of 127 days. Meanwhile, appeals 
resolution remains a lengthy process. In fiscal year 2006, it took an 
average of 657 days to resolve appeals. Several factors may be 
affecting VA's claims processing performance. These include the 
potential impacts of laws and court decisions, continued increases in 
the number and complexity of claims being filed, and difficulties in 
obtaining the evidence needed to adjudicate claims in a timely manner, 
such as military service records. To help improve claims processing 
performance, VA has taken a number of steps, including requesting 
funding for additional staff and undertaking initiatives to reduce 
appeal remands. The President's fiscal year 2008 budget requests an 
increase of over 450 full-time equivalent employees to process 
compensation claims. Through training and information sharing, VA is 
also working to reduce appeals processing times by decreasing the 
number of cases sent back from the appeals level for further 
development.
---------------------------------------------------------------------------
    \1\ Rating-related claims are primarily original claims for 
disability compensation and pension benefits, and reopened claims. For 
example, veterans may file reopened claims if they believe their 
service-connected conditions have worsened.
---------------------------------------------------------------------------
    Despite the steps VA is taking, opportunities for significant 
performance improvement may lie in more fundamental reform of VA's 
disability compensation program. This would include reexamining program 
design as well as the structure and division of labor among field 
offices. For example, we found that VA's and other Federal disability 
programs have not been updated to reflect the current state of science, 
medicine, technology, and labor market conditions. For example, the 
criteria for disability decisions are based primarily on estimates made 
in 1945 about the effect of service-connected impairments on the 
average individual's ability to perform jobs requiring manual labor. In 
addition, VA and other organizations have identified potential changes 
to field operations that could enhance productivity in processing 
disability claims. While major reexamination may be daunting, there are 
mechanisms for undertaking such an effort. For example, the 
congressionally chartered commission on veterans' disability benefits 
has been studying a number of program design issues and will report to 
the Congress later this year.
Background
    VA pays monthly disability compensation benefits to veterans with 
service-connected disabilities (injuries or diseases incurred or 
aggravated while on active military duty) according to the severity of 
the disability. VA also pays compensation to some spouses, children, 
and parents of deceased veterans and servicemembers. VA's pension 
program pays monthly benefits based on financial need to certain 
wartime veterans or their survivors.\2\
---------------------------------------------------------------------------
    \2\ Veterans qualify for pensions if they have low income, served 
in a period of war, and are permanently and totally disabled for 
reasons not service-connected (or are age 65 or older).
---------------------------------------------------------------------------
    When a veteran submits a claim to any of the Veterans Benefits 
Administration's (VBA) 57 regional offices, a veterans service 
representative is responsible for obtaining the relevant evidence to 
evaluate the claim. Such evidence includes veterans' military service 
records, medical examinations, and treatment records from VA medical 
facilities and private medical service providers. Once a claim has all 
the necessary evidence, a rating specialist evaluates the claim and 
determines whether the claimant is eligible for benefits. If the 
veteran is eligible for disability compensation, the rating specialist 
assigns a percentage rating based on degree of disability. A veteran 
who disagrees with the regional office's decision can appeal to VA's 
Board of Veterans' Appeals, and then to U.S. Federal courts. If the 
Board finds that a case needs additional work, such as obtaining 
additional evidence or contains procedural errors, it is sent back to 
the Veterans Benefits Administration, which is responsible for initial 
decisions on disability claims.
    In November 2003, the Congress established the Veterans' Disability 
Benefits Commission to study the appropriateness of VA disability 
benefits, including disability criteria and benefit levels. The 
commission is scheduled to report the results of its study to the 
Congress in October 2007.
VA Continues to Face Challenges in Improving Its Claims Processing
    Several factors are continuing to create challenges for VA's claims 
processing, despite its steps to improve performance. While VA made 
progress in fiscal years 2002 and 2003 reducing the size and age of its 
pending claims inventory, it has lost ground since then. This is due in 
part to increased filing of claims, including those filed by veterans 
of the Iraq and Afghanistan conflicts. Other factors include increases 
in claims complexity, the effects of recent laws and court decisions, 
and challenges in acquiring needed evidence in a timely manner. VA's 
steps to improve performance include requesting funding for additional 
staff and undertaking initiatives to reduce appeal remands.
    VA's inventory of pending claims and their average time pending has 
increased significantly in the last 3 years, in part because of an 
increase in the number of claims. The number of pending claims 
increased by almost one-half from the end of fiscal year 2003 to the 
end of fiscal year 2006, from about 254,000 to about 378,000. During 
the same period, the number of claims pending longer than 6 months 
increased by more than three-fourths, from about 47,000 to about 83,000 
(see fig. 1).

Figure 1: Rating Related Claims Pending at End of Period, Fiscal Year 
        2000-2006

        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

        
    Source: VA

    Similarly, as shown in figure 2, VA reduced the average age of its 
pending claims from 182 days at the end of fiscal year 2001 to 111 days 
at the end of fiscal year 2003. However, by the end of fiscal year 
2006, average days pending had increased to 127 days. Meanwhile, the 
time required to resolve appeals remains too long. The average time to 
resolve an appeal rose from 529 days in fiscal year 2004 to 657 days in 
fiscal year 2006.
Figure 2: Average Days Pending for VA Compensation and Pension Rating-
        Related Claims, Fiscal Years 2000-2006


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

        
    Source: VA Data.

    The increase in VA's inventory of pending claims, and their average 
time pending is due in part to an increase in claims receipts. Rating-
related claims, including those filed by veterans of the Iraq and 
Afghanistan conflicts, increased steadily from about 579,000 in fiscal 
year 2000 to about 806,000 in fiscal year 2006, an increase of about 39 
percent. While VA projects relatively flat claim receipts in fiscal 
years 2007 and 2008, it cautions that ongoing hostilities in Iraq and 
Afghanistan, and the Global War on Terrorism in general, may increase 
the workload beyond current levels. VA also attributes increased claims 
to its efforts to increase outreach to veterans and servicemembers. For 
example, VA reports that in fiscal year 2006, it provided benefits 
briefings to about 393,000 separating servicemembers, up from about 
210,000 in fiscal year 2003, leading to the filing of more original 
compensation claims. VA has also noted that claims have increased in 
part because older veterans are filing disability claims for the first 
time.
    Moreover, according to VA, the complexity of claims is also 
increasing. For example, some veterans are citing more disabilities in 
their claims than in the past. Because each disability needs to be 
evaluated separately, these claims can take longer to complete. 
Additionally, VA notes that it is receiving claims for new and complex 
disabilities related to combat and deployments overseas, including 
those based on environmental and infectious disease risks and traumatic 
brain injuries. Further, VA is receiving increasing numbers of claims 
for compensation for post-traumatic stress disorder, which are 
generally harder to evaluate, in part because of the evidentiary 
requirements to substantiate the event causing the stress disorder.
    Since 1999, several court decisions and laws related to VA's 
responsibilities to assist veterans in developing their benefit claims 
have significantly affected VA's ability to process claims in a timely 
manner. VA attributes some of the increase in the number of claims 
pending and the average days pending to a September 2003 court decision 
that required over 62,000 claims to be deferred, many for 90 days or 
longer. Also, VA notes that legislation and VA regulations have 
expanded benefit entitlement and added to the volume of claims. For 
example, in recent years, laws and regulations have created new 
presumptions of service-connected disabilities for many Vietnam 
veterans and former prisoners of war. Also, VA expects additional 
claims receipts based on the enactment of legislation allowing certain 
military retirees to receive both military retirement pay and VA 
disability compensation.
    Additionally, claims processing timeliness can be hampered if VA 
cannot obtain the evidence it needs in a timely manner. For example, to 
obtain information needed to fully develop some post-traumatic stress 
disorder claims, VBA must obtain records from the U.S. Army and Joint 
Services Records Research Center (JSRRC), whose average response time 
to VBA regional office requests is about 1 year. This can significantly 
increase the time it takes to decide a claim. In December 2006, we 
recommended that VBA assess whether it could systematically utilize an 
electronic library of historical military records rather than 
submitting all research requests to JSRRC. VBA agreed to determine the 
feasibility of regional offices using an alternative resource prior to 
sending some requests to JSRRC.
    VA has recently taken several steps to improve claims processing. 
In its fiscal year 2008 budget justification, VA identified an increase 
in claims processing staff as essential to reducing the pending claims 
inventory and improving timeliness. According to VA, with a workforce 
that is sufficiently large and correctly balanced, it can successfully 
meet the veterans' needs while ensuring good stewardship of taxpayer 
funds. The fiscal year 2008 request would fund 8,320 full-time 
equivalent employees working on compensation and pension, which would 
represent an increase of about 6 percent over fiscal year 2006. In 
addition, the budget justification cites near-term initiatives to 
increase the number of claims completed, such as using retired VA 
employees to provide training and the increased use of overtime.
    Even as staffing levels increase, however, VA acknowledges that it 
still must take other actions to improve productivity.\3\ VA's budget 
justification provides information on actual and planned productivity, 
in terms of claims decided per full-time equivalent employee. While VA 
expects a temporary decline in productivity as new staff are trained 
and become more experienced, it expects productivity to increase in the 
longer term. Also, VA has identified additional initiatives to help 
improve productivity. For example, VA plans to pilot paperless Benefits 
Delivery at Discharge, where servicemembers' disability claim 
applications, service medical records, and other evidence would be 
captured electronically prior to discharge. VA expects that this new 
process will reduce the time needed to obtain the evidence needed to 
decide claims.
---------------------------------------------------------------------------
    \3\ See GAO, Veterans' Benefits: More Transparency Needed to 
Improve Oversight of VBA's Compensation and Pension Staffing Levels, 
GAO-05-47 (Washington, D.C.: Nov. 15, 2004).
---------------------------------------------------------------------------
    To resolve appeals faster, VA has been working to reduce the number 
of appeals sent back by the Board of Veterans' Appeals for further work 
such as obtaining additional evidence and correcting procedural errors. 
To do so, VA has established joint training and information sharing 
between field staff and the Board. VA reports that it has reduced the 
percentage of decisions remanded from about 57 percent in fiscal year 
2004 to about 32 percent in fiscal year 2006, and expects its efforts 
to lead to further reductions. Also, VA reports that it has improved 
the productivity of the Board's judges from an average of 604 appeals 
decided in fiscal year 2003 to 698 in fiscal year 2006. The Board 
attributes this improvement to training and mentoring programs and 
expects productivity to improve to 752 decisions in fiscal year 2008.
Opportunities for Improvement May Lie in More Fundamental Reform
    While VA is taking actions to address its claims processing 
challenges, there are opportunities for more fundamental reform that 
could dramatically improve decisionmaking and processing. These include 
reexamining program design, as well as the structure and division of 
labor among field offices.
    After more than a decade of research, we have determined that 
Federal disability programs are in urgent need of attention and 
transformation, and we placed modernizing Federal disability programs 
on our high-risk list in January 2003. Specifically, our research 
showed that the disability programs administered by VA and the Social 
Security Administration (SSA) lagged behind the scientific advances and 
economic and social changes that have redefined the relationship 
between impairments and work. For example, advances in medicine and 
technology have reduced the severity of some medical conditions and 
have allowed individuals to live with greater independence and function 
in work settings. Moreover, the nature of work has changed in recent 
decades as the national economy has moved away from manufacturing-based 
jobs to service- and knowledge-based employment. Yet VA's and SSA's 
disability programs remain mired in concepts from the past, 
particularly the concept that impairment equates to an inability to 
work. Because of this, and because of continuing program administration 
problems, such as lengthy claims processing times, we found that these 
programs are poorly positioned to provide meaningful and timely support 
for Americans with disabilities.
    In August 2002, we recommended that VA use its annual performance 
plan to delineate strategies for and progress in periodically updating 
labor market data used in its disability determination process. We also 
recommended that VA study and report to the Congress on the effects 
that a comprehensive consideration of medical treatment and assistive 
technologies would have on its disability programs' eligibility 
criteria and benefits package. This study would include estimates of 
the effects on the size, cost, and management of VA's disability 
programs and other relevant VA programs and would identify any 
legislative actions needed to initiate and fund such changes.
    In addition to program design, VA's regional office claims 
processing structure may be disadvantageous to efficient operations. 
VBA and others who have studied claims processing have suggested that 
consolidating claims processing into fewer regional offices could help 
improve claims-processing efficiency and save overhead costs. We noted 
in December 2005 that VA had made piecemeal changes to its claims-
processing field structure. VA consolidated decisionmaking on Benefits 
Delivery at Discharge claims, which are generally original claims for 
disability compensation, at the Salt Lake City and Winston-Salem 
regional offices. VA also consolidated in-service dependency and 
indemnity compensation claims at the Philadelphia regional office. 
These claims are filed by survivors of servicemembers who die while in 
military service.\4\ VA consolidated these claims as part of its 
efforts to provide expedited service to these survivors, including 
servicemembers who died in Operations Iraqi Freedom and Enduring 
Freedom. However, VA has not changed its basic field structure for 
processing compensation and pension claims at 57 regional offices, 
which experience large performance variations. Unless more 
comprehensive and strategic changes are made to its field structure, 
VBA is likely to miss opportunities to substantially improve 
productivity, especially in the face of future workload increases. We 
have recommended that VA undertake a comprehensive review of its field 
structure for processing disability compensation and pension claims.
---------------------------------------------------------------------------
    \4\ VBA also provides dependency and indemnity compensation to 
survivors of certain deceased disability compensation beneficiaries.
---------------------------------------------------------------------------
    While reexamining claims-processing challenges may be daunting, 
there are mechanisms for undertaking such an effort, including the 
congressionally chartered commission currently studying veterans' 
disability benefits. In November 2003, the Congress established the 
Veterans' Disability Benefits Commission to study the appropriateness 
of VA disability benefits, including disability criteria and benefit 
levels. The commission is to examine and provide recommendations on (1) 
the appropriateness of the benefits, (2) the appropriateness of the 
benefit amounts, and (3) the appropriate standard or standards for 
determining whether a disability or death of a veteran should be 
compensated. The commission held its first public hearing in May 2005, 
and in October 2005, the commission established 31 research questions 
for study. These questions address such issues as how well disability 
benefits meet the congressional intent of replacing average impairment 
in earnings capacity, and how VA's claims-processing operation compares 
to other disability programs, including the location and number of 
processing centers. These issues and others have been raised by 
previous studies of VBA's disability claims process. The commission is 
scheduled to report to the Congress by October 1, 2007.
    Mr. Chairman, this concludes my remarks. I would be happy to answer 
any questions that you or other Members of the Subcommittee may have.
Contact and Acknowledgments
    For further information, please contact Daniel Bertoni at (202) 
512-7215. Also contributing to this statement were Shelia Drake, Martin 
Scire, Greg Whitney, and Charles Willson.
Related GAO Products
    Veterans' Disability Benefits: Long-Standing Claims Processing 
Problems Persist. GAO-07-512T. Washington, D.C.: March 7, 2007.
    High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 
31, 2007.
    Veterans' Disability Benefits: VA Can Improve Its Procedures for 
Obtaining Military Service Records. GAO-07-98. Washington, D.C.: 
December 12, 2006.
    Veterans' Benefits: Further Changes in VBA's Field Office Structure 
Could Help Improve Disability Claims Processing. GAO-06-149. 
Washington, D.C.: December 9, 2005.
    Veterans' Disability Benefits: Claims Processing Challenges and 
Opportunities for Improvements. GAO-06-283T. Washington, D.C.: December 
7, 2005.
    Veterans' Disability Benefits: Improved Transparency Needed to 
Facilitate Oversight of VBA's Compensation and Pension Staffing Levels. 
GAO-06-225T. Washington, D.C.: November 3, 2005.
    VA Benefits: Other Programs May Provide Lessons for Improving 
Individual Unemployability Assessments. GAO-06-207T. Washington, D.C.: 
October 27, 2005.
    Veterans' Disability Benefits: Claims Processing Problems Persist 
and Major Performance Improvements May Be Difficult. GAO-05-749T. 
Washington, DC.: May 26, 2005.
    VA Disability Benefits: Board of Veterans' Appeals Has Made 
Improvements in Quality Assurance, but Challenges Remain for VA in 
Assuring Consistency. GAO-05-655T. Washington, D.C.: May 5, 2005.
    Veterans Benefits: VA Needs Plan for Assessing Consistency of 
Decisions. GAO-05-99. Washington, D.C.: November 19, 2004.
    Veterans' Benefits: More Transparency Needed to Improve Oversight 
of VBA's Compensation and Pension Staffing Levels. GAO-05-47. 
Washington, D.C.: November 15, 2004.
    Veterans' Benefits: Improvements Needed in the Reporting and Use of 
Data on the Accuracy of Disability Claims Decisions. GAO-03-1045. 
Washington, D.C.: September 30, 2003.
    Department of Veterans Affairs: Key Management Challenges in Health 
and Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003.
    Veterans Benefits Administration: Better Collection and Analysis of 
Attrition Data Needed to Enhance Workforce Planning. GAO-03-491. 
Washington, D.C.: April 28, 2003.
    Veterans' Benefits: Claims Processing Timeliness Performance 
Measures Could Be Improved. GAO-03-282. Washington, D.C.: December 19, 
2002.
    Veterans' Benefits: Quality Assurance for Disability Claims and 
Appeals Processing Can Be Further Improved. GAO-02-806. Washington, 
D.C.: August 16, 2002.
    Veterans' Benefits: VBA's Efforts to Implement the Veterans Claims 
Assistance Act Need Further Monitoring. GAO-02-412. Washington, D.C.: 
July 1, 2002.
    Veterans' Benefits: Despite Recent Improvements, Meeting Claims 
Processing Goals Will Be Challenging. GAO-02-645T. Washington, D.C.: 
April 26, 2002.
    Veterans Benefits Administration: Problems and Challenges Facing 
Disability Claims Processing. GAO/T-HEHS/AIMD-00-146. Washington, D.C.: 
May 18, 2000.
                             GAO Highlights

                     VETERANS' DISABILITY BENEFITS

Processing of Claims Continues to Present Challenges
Why GAO Did This Study
    The Subcommittee on Disability Assistance and Memorial Affairs, 
House Veterans' Affairs Committee, asked GAO to discuss its recent work 
related to the Department of Veterans Affairs' (VA) disability claims 
and appeals processing.
    GAO has reported and testified on this subject on numerous 
occasions. GAO's work has addressed VA's efforts to improve the 
timeliness of decisions on claims and appeals and VA's efforts to 
reduce backlogs.
What GAO Found
    VA continues to face challenges in improving service delivery to 
veterans, specifically speeding up the process of adjudication and 
appeal, and reducing the existing backlog of claims. For example, as of 
the end of fiscal year 2006, rating-related compensation claims were 
pending an average of 127 days, 16 days more than at the end of fiscal 
year 2003. During the same period, the inventory of rating-related 
claims grew by almost half, in part because of increased filing of 
claims, including those filed by veterans of the Iraq and Afghanistan 
conflicts. Meanwhile, appeals resolution remains a lengthy process, 
taking an average of 657 days in fiscal year 2006. However, several 
factors may limit VA's ability to make and sustain significant 
improvements in its claims-processing performance, including the 
potential impacts of laws and court decisions, continued increases in 
the number and complexity of claims being filed, and difficulties in 
obtaining the evidence needed to decide claims in a timely manner, such 
as military service records. VA is taking steps to address these 
problems. For example, the President's fiscal year 2008 budget requests 
an increase of over 450 full-time equivalent employees to process 
compensation claims. VA is also working to improve appeals timeliness 
by reducing appeals remanded for further work.
See Figure 1. Rating-Related Claims Pending at End of Period, Fiscal 
        Years 2000-2006 above.
    While VA is taking actions to address its claims-processing 
challenges, opportunities for significant performance improvement may 
lie in more fundamental reform of VA's disability compensation program. 
This could include reexamining program design such as updating the 
disability criteria to reflect the current state of science, medicine, 
technology, and labor market conditions. It could also include 
examining the structure and division of labor among field offices.

                                 
  Statement of Linda J. Bilmes, Professor, John F. Kennedy School of 
             Government, Harvard University, Cambridge, MA
    Thank you for inviting me to speak to you today on this important 
topic.
    By way of background, last year I co-authored, with Nobel laureate 
Professor Joseph Stiglitz, a paper that analyzed the economic costs of 
the Iraq War. One of the long-term costs we identified is the cost of 
providing lifetime disability benefits and medical care for veterans. 
After we published the paper, a number of prominent veterans' 
organizations approached us. They argued that we had underestimated the 
cost of providing veterans care, primarily because we had not included 
all the soldiers who would potentially become eligible to claim 
benefits. They urged me to do additional research into this topic. As a 
result I wrote a second paper this year, specifically looking at the 
cost of providing medical care and disability benefits to veterans 
deployed in Operation Iraqi Freedom and Operation Enduring Freedom 
(OIF/OEF). [The paper, Soldiers Returning from Iraq and Afghanistan: 
The Long-term Costs of Providing Veterans Medical Care and Disability 
Benefits, KSG Research Working Paper RWP07-001 has been submitted for 
the record.]
    To date, over 1.4 million US servicemen have been deployed to 
operations in and around Iraq and Afghanistan.\1\ The servicemen who 
have been officially wounded in combat are a small percentage of the 
veterans who will be using the veteran's administration system. 
Hundreds of thousands of these men and women will be seeking medical 
care and claiming disability compensation for a wide variety of 
disabilities incurred during their tours of duty. Disability 
compensation is thus a significant long-term entitlement cost that will 
continue for at least the next forty years.
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    \1\ As of September 30, 2006, 1,406,281 unique servicemembers have 
been deployed to the wars in Iraq and Afghanistan, according to the 
Department of Defense, Defense Manpower Data Center, and ``Contingency 
Tracking System.'' The Veterans Health Administration (VHA) Office of 
Public Health and Environmental Hazards, November 2006 uses the number 
1.4 million (as of November 2006). The Veterans Benefits Administration 
(VBA) lists 1,324,419 unique servicemen deployed to GWOT as of May 2006 
(prepared by VBA/OPA&I, 7/20/06).
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    Today I would like to focus on the projected number of veterans' 
claims, the capacity of the Department of Veterans Affairs to process 
those claims, and the cost of providing benefits to returning OIF/OEF 
soldiers. I would like to discuss five key areas of concern and then to 
recommend five changes that I believe would streamline the claims 
process.

          First, the Veterans Benefits Administration (VBA) is 
        overwhelmed with the volume of claims it is receiving, leading 
        to a huge backlog;
          Second, the claims process is unnecessarily long, 
        cumbersome, and paperwork-intensive;
          Third, the wars in Iraq and Afghanistan are rapidly 
        turning the disability claims problem into a crisis;
          Fourth, the long-term cost of providing disability 
        benefits to GWOT veterans is projected to be $70 to $150 
        billion, in today's dollars; and
          Fifth, the growing number of disability claims has 
        increased demand for veteran's medical examinations, which is 
        adding to the pressure on veteran's health facilities.

    I will review these points first, and then I will offer my 
recommendations.
    First, the VBA is currently overwhelmed with the volume of claims 
it is receiving, leading to a huge backlog. In 2006, the VBA received 
over 800,000 claims. Secretary Nicholson testified last month that he 
expects to receive 1.6 million additional claims in the next 2 years. 
These include both new claims from returning OIF/OEF veterans as well 
as claims from veterans who are already service-connected, mostly for 
conditions that have worsened since their initial claim. My own 
projections show that between 250,000 and 400,000 of these claims will 
be new applications from soldiers currently serving in Iraq and 
Afghanistan.
    The number of pending claims has risen from 69,000 in 2001 to more 
than 400,000 as of December 2006. Including the back-and-forth of 
paperwork related to claims, the VBA currently has a backlog of more 
than 600,000.
    Second, the claims process itself is long, cumbersome and 
paperwork-intensive. The VBA takes an average of 177 days (about 6 
months) to process an initial claim, and an average of 657 days (about 
2 years) to process an appeal. This is 22% below the agency's own 
target goal of 145 days. It is also far below the standards of the 
private sector medical insurance industry, which settles 30 million 
insurance claims--including appeals--within an average of 89.5 days.
    Back in 2000, before the current war, the GAO identified 
longstanding problems in the claims process. These included large 
backlogs of pending claims, lengthy processing times for initial 
claims, high error rates in claims processing, and inconsistency across 
regional offices.
    The process for ascertaining whether a veteran is suffering from a 
disability, and rating the percentage level of a veteran's disability, 
is too complex. A veteran must apply to one of the 57 VBA regional 
offices, where a claims adjudicator evaluates the veteran's service-
connected impairments and assigns a rating for the degree to which the 
veteran is disabled. Claims specialists must determine the percentage 
disability for each condition, in increments of ten. However, 
conditions are not scaled monotonically from 0 to 100. Mental 
conditions, for example, are rated: 0, 10, 30, 50, 70, or 100. Coronary 
artery disease ratings are: 10, 30, 60, and 100. Spinal conditions are 
rated: 10, 20, 30, 40, 50, and 100. A huge amount of time is devoted to 
making these determinations.
    If a veteran disagrees with any part of the regional office's 
decision, he or she can file a notice of disagreement with the local 
office. If this is rejected, the veteran may file a formal appeal and 
the claim will be physically transferred to the Board of Veterans 
Appeals based in Washington, DC, which is not part of VBA. The Board 
may then grant, deny, or remand the claim, in whole or in part. If the 
veteran still disagrees with the board, the veteran may appeal to the 
courts. This process often takes years during which the veteran is left 
in limbo.
    Moreover there is a wide disparity in efficiency between individual 
VBA offices. Regional offices are inconsistent in how they rate 
disabilities. GAO found that the days needed to process a claim ranged 
from 99 in Salt Lake City to 237 in Honolulu. Some of the states 
providing the most soldiers for the war are suffering the longest 
delays in claims adjudication.
    In addition, the claims themselves are more complicated than in 
previous conflicts. Vietnam era claims cited on average three 
disability conditions. Gulf War veterans filed on average for four 
conditions. In the current conflict the average claim includes five 
separate disability issues. One-quarter of the new claims filed in 2006 
cited 8 or more disabilities. Often these involve complex battle 
related injuries, as well as traumatic brain injury, PTSD, or 
complications from chronic diseases. Since each item within a claim is 
treated separately, there is a great deal of duplication and delay.
    The VBA has more than 9,000 claims specialists. Many are themselves 
veterans, and they generally do a wonderful job in assisting veterans 
obtain the maximum amount of benefits to which they are entitled. But 
they are under enormous strain. They are required to assist the 
claimant in obtaining evidence, in accordance with hundreds of arcane 
VBA regulations, policies, procedures and guidelines. They must also 
rate the claims, establish claims files, authorize payments, conduct 
in-person and telephone interviews, process appeals and generate 
various notification documents through the process. New employees 
require about 18 months to become fully trained. The VBA has antiquated 
IT systems that make it difficult for the claims specialists to do 
their job efficiently. For example, many staffers are dependent on 
unreliable old fax machines to obtain vital documentation from veterans 
and medical providers.
    For all these reasons I believe that the agency, as currently 
structured, is simply not capable of settling the current and projected 
volume of claims in a timely manner.
    My third point is that the projected number of claims from the wars 
in Iraq and Afghanistan will rapidly turn the disability claims problem 
into a crisis. The current conflict has the highest incidence of non-
mortal casualties in U.S. military history: a ratio of 16 woundings or 
injuries per fatality. To date, of the more than 1.4 million U.S. 
soldiers who have been deployed, about 631,000 have been discharged. 
One-third of these men and women--about 205,000--have already been 
treated and diagnosed at VHA hospitals and clinics, and 180,000 have 
applied for disability benefits. If returning GWOT soldiers claim 
benefits at the same rate as veterans from the first Gulf War, we can 
expect 638,000 unique new first-time claims in the next five years. If 
all troops return home by 2008, there are likely to be more than 
400,000 new claims by the end of 2009 alone.
    Fourth, the cost of providing disability benefits to GWOT veterans 
is projected to be between $70 billion and $150 billion in 2007 
dollars.\2\ The cost is not the only issue here, but it is yet another 
major cost of war that has not been anticipated by the administration. 
The eventual cost will depend on several factors, including the number 
of troops stationed in Iraq and Afghanistan and the length of time they 
are deployed. It will also depend on the rate of claims and utilization 
of benefit programs by returning troops and the rate of increase in 
disability payments (including cost-of-living adjustments). My study 
did not take into account the additional costs of nursing home care, 
concurrent receipt pay, or the social and economic cost to society of 
these disabilities.
---------------------------------------------------------------------------
    \2\ The discount rate used for this analysis was 4.75%.
---------------------------------------------------------------------------
    In order to project the number of claims for the current conflict, 
I looked at the claims history of veterans from the first Gulf War. We 
currently pay over $4 billion per year in disability claims for that 
war, even though it was short and had relatively few casualties. The 
cost of providing benefits to GWOT veterans will be higher by an order 
of magnitude.
    The ``best case'' low scenario cost of $71 billion (present value 
discounted at 4.75% over 40 years) assumes the total number of soldiers 
deployed does not exceed 1.4 million, that all troops come home by 
2010, and that GWOT veteran's disability claims show a similar profile 
to Gulf War veterans--that is, 44% claim some level of disability and 
87% of those claims are at least partially granted. This scenario 
assumes that 643,000 GWOT veterans eventually claim benefits, that the 
average payment to a veteran is the same as the average to a Gulf War 
veteran ($504 per month) and that the veteran receives an average 
annual cost-of-living adjustment of only 2.8%
    The moderate scenario--which is looking increasingly likely---
assumes that the conflict involves a total of 1.7 million servicemen, 
including keeping a small U.S. presence in the region through 2015, and 
that 747,000 GWOT soldiers file claims. The present value cost of this 
scenario, assuming that cost-of-living adjustments are 4.1% (the amount 
given this year) and average payment is in line with Gulf War veterans, 
is $109 billion.
    The ``high'' scenario assumes that two million servicemen are 
deployed to GWOT through 2015, that 50% of veterans file disability 
claims, and that benefits increase at a compound annual growth rate of 
6.1%, which is the actual rate of increase over the past 10 years. Here 
I have estimated the monthly benefit at $716, which is the average 
benefit to all veterans today. Under this scenario I project 869,000 
successful claimants and a total present value cost of $125 billion. If 
the amount of the GWOT veterans claims were to equal the level of 
Vietnam veterans, the cost would rise beyond $150 billion.
    Fifth, the growing number of disability claims is creating 
additional demand for veterans' medical examinations. This is adding to 
the pressure on veterans' health facilities. The current system does 
not guarantee that all soldiers receive complete physicals in the 
military upon discharge. Even if the soldier does obtain a complete 
physical exam prior to discharge, he or she cannot automatically 
transfer that information to the VBA for use in certifying 
disabilities. Consequently, newly discharged veterans who intend to 
file any kind of disability claim are seeking medical examinations from 
VBA health facilities primarily in order to document their 
disabilities. The VBA health facilities already face a major challenge 
to provide first rate care for the large volume of soldiers returning 
from Iraq and Afghanistan. My point is that the complexity of the 
claims process itself is diverting valuable medical resources away from 
providing treatment into supporting the claims process itself. Veterans 
are seeking appointments with doctors in the VBA, not because they 
require immediate treatment, but rather to verify a disabling 
condition--even in cases where it was already documented upon discharge 
from the military.
RECOMMENDATIONS
    The veterans returning from Iraq are suffering from the same 
problem that has plagued many other aspects of the war, namely a 
failure to plan ahead. The VBA has many initiatives underway to 
streamline the benefits process. But these efforts are unlikely to be 
fully implemented in time to help the returning Iraq and Afghanistan 
war veterans.
    To address the immediate backlog, Secretary Nicholson proposes to 
hire 457 additional claims specialists, to increase the claims 
processed per specialist from 98 to 101, and to make training manuals 
more readily available. He projects this will cut the length of time it 
takes to process a veteran's claim by 32 days in 2008. I am not 
optimistic that a few hundred inexperienced new staffers (even assuming 
they can all be hired quickly) will produce a 22% improvement in claims 
processing time, during a period in which the agency faces a huge 
influx of complex claims. Indeed it is conceivable that the task of 
training and integrating a large number of inexperienced hires will in 
the short term actually lengthen claims processing times and increase 
the level of appeals. The problem is compounded by the fact that many 
experienced VBA personnel will be retiring over the next 5 years.
    I believe that finding an answer to the claims problem requires us 
to think outside the box. I would like to offer several proposals that 
do this.

1. First, for the next two years, the VBA should accept and pay all 
disability claims by returning GWOT soldiers at face value--and then 
audit a sample of them. This is essentially the same system that is 
used elsewhere in government, for example, the IRS for taxes and the 
SEC for filings. This idea would involve retraining some of the claims 
specialists as auditors, freeing up the remaining specialists to focus 
on assisting non GWOT veterans claims, which should reduce the backlog 
of old claims. At the same time, this bold step would ensure that new 
claimants do not fall through the cracks or endure months of 
bureaucratic delay.

2. Second, the VBA should replace the cumbersome 0-100 scale for 
disabilities with a simple four-level ranking: zero disabled, low 
disability, medium disability, and high disability. This would 
immediately streamline the process, reduce discrepancies between 
regions, and likely cut the number of appeals. The VBA should create a 
``short form'' for returning veterans, using this four-level ranking 
and set a goal of processing all claims within 60 days of receipt. This 
new system should be up and running within two years, including 
retraining of the workforce and developing necessary guidelines and 
appeals procedures.

3. Third, all soldiers serving in the GWOT should receive a mandatory 
full medical examination at discharge, with all records from this 
examination made available electronically to the VBA immediately. The 
VBA should then be able to use these records to spot check and audit 
claims and to assist veterans, and to relieve some of the pressure on 
VBA. If veterans are discharged without full medical examinations, they 
should be reimbursed to receive such an examination from any fully 
accredited physician within 30 days of discharge, and this record 
should be used by VBA for making claims awards.

4. Fourth, VBA should shift its focus away from claims processing and 
onto rehabilitating and reintegration of veterans. The VBA has a 
dedicated staff who wants to help veterans. Instead of using them to 
process papers, we should use this workforce as a strategic asset. The 
VBA staff should be given much greater discretion in helping veterans. 
Claims specialists should be placed in all neighborhood veterans' 
centers, help centers, and special centers to assist reservists and 
Guardsmen.

5. Fifth and finally, Congress should enact Senate Bill 117, the Lane 
Evans Veterans Healthcare and Benefits Improvement Act of 2007, 
sponsored by Senators Obama and Snowe. This legislation would improve 
data collection and monitoring of disability claims, improve access to 
mental healthcare and create a more level playingfield for Guards and 
Reservists.

    Thank you very much for your time and attention today. I would be 
pleased to answer any questions you may have.

                                 
Statement of Ann G. Knowles, President, National Association of County 
                       Veterans Service Officers
Introduction
    Mr. Chairman, members of the Committee, it is truly my honor to be 
able to present this testimony before your Committee. As President of 
the National Association of County Veterans Service Officers, I am 
commenting on:

          The impact of Operation Iraqi Freedom and Operation 
        Enduring Freedom on the Veterans Administration Claims Process

    The National Association of County Veterans Service Officers is an 
organization made up of local government employees. Our Members are 
tasked with assisting veterans in developing and processing their 
claims. We exist to serve veterans and partner with the National 
Service Organizations and the Department of Veterans Affairs to serve 
veterans. Our Association focuses on outreach, standardized quality 
training, and claims processing. We are an extension or arm of 
government, not unlike the VA itself in service to the nation's 
veterans and their dependents.
The Relationship Between CVSOs and the VA
    The relationship between the Department of Veterans Affairs (DVA) 
and the County Veterans Service Officers (CVSO) throughout our great 
nation has traditionally been professional and mutually advantageous. 
The DVA has assisted CVSOs in providing limited training and access to 
information the DVA holds on the CVSO's clients. The CVSO serves as the 
entry point for a large majority of disability and pension claims 
nationwide for the local veteran to access the services offered by the 
DVA. Most veterans view the local CVSO as ``The VA'' and do not realize 
that the DVA and the CVSO are not one and the same.
    NACVSO sees the role of county veteran's service officers as one of 
advocacy and claims development in concert with the veteran or 
dependent at the grassroots level.
    Our Members sit across the desk from our veterans everyday. Because 
of this direct access to our veterans, we believe we are in the 
position to assist the DVA in claims development in an unprecedented 
way. Developing complete and ready to rate claims eases the burden on 
the DVA's backlog or inventory of claims.
    The process begins with a face to face, in depth interview between 
the veteran and the CVSO. This initial interview accomplishes many 
things. It builds a trust between the veteran and the CVSO and provides 
the veteran with a basic understanding of how the DVA system works. The 
CVSO honestly explains the process with the veteran while building 
realistic expectations for the veteran. This results in lessening the 
impact of frivolous claims or unrealistic appeals that the DVA is 
mandated to process and develop.
    Once complete, the application package is passed on to a state or 
national service office for review and presentation to the VA regional 
office of jurisdiction. Any hearings or additional records required can 
be obtained by the CVSO of record if needed.
    Once the rating decision is made and received by the veteran, the 
veteran nearly always returns to the CVSO for an explanation. The CVSO 
then interprets the decision for the veteran and explains what the 
decision means. The CVSO reviews the rating decision for accuracy and 
explains the veteran's benefits. If an appeal is warranted, the CVSO 
can explain a notice of disagreement and assist the veteran with the 
preparation of the appeal. The CVSO can also limit frivolous claims 
through proper guidance and counsel to the veteran without further 
bogging down the system. We believe this division of responsibility, 
between two arms of government, benefits the veteran, the CVSO and the 
DVA and has the potential to provide a clearer understanding for the 
veteran of the process of claims development and how the DVA system 
works.
Issues Affecting Veterans of OIF/OEF
    The returning veterans from these two theaters of action have been 
receiving priority care from the Veterans Administration. There are 
valid reasons but it has resulted in many other claims being placed on 
the back burner, claims that have equally valid reasons for priority 
action. VA officials have stated the number of claims filed since 2000 
has risen nearly 40% and this has caused the number of cases pending to 
balloon to over 800,000. Yet, only about 4% of the new claims are from 
Iraq and Afghanistan (St Louis Post Dispatch, February 26, 2007). To 
stay on target with the subject at hand, let us look at the numbers and 
nature of injuries of OIF and OEF veterans. It has been reported by the 
DOD that over 19,000 Purple Heart Medals have been awarded since the 
beginning of OIF/OEF. Each of these is a potential claim for benefits 
with the DVA. Add to this another 25,000 wounded and ever escalating 
KIA numbers as additional troops are assigned to Iraq. Secretary 
Nicholson, in his interview with Bob Woodward of ABC News, showed 
statistics of treatment within VA facilities of over 200,000 OIF-OEF 
veterans. Not every treatment is a claim, but even a small percentage 
of these filing a claim for benefits will escalate the numbers in the 
pipeline waiting processing.
    Post-Traumatic Stress Disorder is recognized in the returning 
veterans from Iraq and Afghanistan; their treatment has been given 
priority. A United States Army study places those suffering from PTSD 
at approximately one in eight soldiers who have served in either Iraq 
or Afghanistan. A survey of deployed troops indicates that 12% of those 
serving in Iraq and up to 6% who served in Afghanistan have reported 
symptoms of major depression, anxiety or PTSD. The most frightening 
statistic is that only 38% of those were interested in getting help and 
as low as only 23%. They cited concerns for how they would be viewed by 
their peers if they sought assistance. This, Mr. Chairman, is a ticking 
time bomb that will eventually blow up in our faces. Not necessarily in 
the face of the military but in local communities where the veterans 
are returning to their homes. CVSOs and VA will be forced to deal with 
these issues because local officials and families concerned about the 
mental health of these young men and women will demand it. And it is . 
. . a sad state of affairs indeed.
    Another issue is the number of veterans who are returning with 
missing limbs and prosthetic devices. Battlefield treatment, and speed 
of evacuation of wounded servicemen and women, has advanced 
substantially over the years. Many of the veterans returning from the 
Gulf Region needing specialty care for missing limbs may well have died 
in previous conflicts. This has placed a tremendous and vital 
responsibility on the Veterans Administration that they are ill 
equipped to deal with, in health and medical care but also to provide 
adequate, timely and fair compensation decisions for the veterans and 
their families who are desperately trying to survive.
Other Issues
    An issue that must be addressed is that of placing one group of 
veterans in a higher priority or ``Class'' than other veterans. When 
the VA decides to give ``Top Priority'' to a select group of claims, 
the other claims, veterans, suffer. Some claims that have languished 
for a year or more suddenly become less likely to be rated or receive 
appropriate attention because of a change of policy. This is because 
personnel in the Regional Office have been instructed to focus on OIF/
OEF veterans claims to the detriment of other claims that have been 
working their way through the backlog or inventory of claims. We feel 
this is tragic and extremely inappropriate. Veterans continue to ``die 
while waiting for VA benefits''.
    We are concerned with the VA's centralization of OIF/OEF claims. We 
are not convinced that the practice can be justified. When Regional 
Office claims are ``brokered out'', the focus becomes quantity and not 
quality. Issuing flawed rating decisions just exacerbates the inventory 
or backlog of and further inflates the bloated backlog of appellate 
litigation.
Suggested Solutions
    One solution would be to re-emphasize the Benefits Delivery at 
Discharge (BDD) program as a ``Pre-separation Program''. Claims and 
medical reports could be submitted prior to separation allowing local 
VA teams to adjudicate the claims and dramatically shorten the time 
that the veteran has to wait for a decision after separation.
    Secondly, streamlining single-issue disability claims at the 
Regional Office level while multi-faced claims that have a combination 
of disabilities that require extensive research are passed to Tiger 
Teams would speed the process.
    Another suggested solution is to increase outreach efforts. 
Outreach efforts must be expanded in order to reach those veterans and 
dependents that are unaware of their benefits and to bring them into 
the system. The National Association of County Veterans Service 
Officers believes that we must do better. Approximately 88 plus % of 
veterans not being compensated is more likely than not an issue if lack 
of access or knowledge of available services rather than lack of need 
or some other issue.
    NACVSO supports HR 67 introduced by Congressman Mike McIntyre, of 
North Carolina that would have allowed Secretary Nicholson to provide 
Federal--state--local grants for assistance to state and county 
veterans service officers to enhance outreach to veterans and their 
dependents. We also support the Bill introduced by Congressman Baca of 
California which would have a significant impact upon the existing 
claims backlog.
    NACVSO stands ready to partner with the Veterans Administration to 
bring about a reduction in the backlog and increase the outreach 
efforts to the veterans of our communities.
Conclusion
    The bottom line is that the Veterans Administration is going to 
have to rise to the occasion and place more personnel to handle the 
expected large influx of new claims and the resulting larger inventory 
or backlog of claims.

                                 
    Statement of Stephen L. Robinson, Director of Veterans Affairs, 
                          Veterans for America
    Chairman Hall, Representative Lamborn, Members of the Subcommittee:
    Thank you for the opportunity to testify.
    I am Steve Robinson, and I am the Director of Veterans Affairs for 
Veterans for America, formerly known as the Vietnam Veterans of America 
Foundation.
    VFA unites a new generation of veterans with those from past wars 
to address the causes, conduct and consequences of war. In my position, 
I constantly meet with Iraq and Afghanistan war veterans about their 
needs and concerns.
    The recent uproar over the treatment of returning servicemembers at 
Walter Reed is not simply an issue of dilapidated physical facilities, 
mice and mold, or inadequacies with one hospital. The issue is much 
larger. Specifically, there is a systematic failure in both Department 
of Defense (DoD) and Department of Veterans Affairs (VA) programs 
designed to address the medical and overall readjustment needs of war 
veterans. As one example, there appears to be no plan to gather robust 
consistent data and then closely monitor the 1.5 million deployed 
Operation Enduring Freedom and Operation Iraqi Freedom (OEF/OIF) 
servicemembers as they return to duty or reintegrate into civilian 
society. As a result, we do not have an adequate understanding of the 
unique needs specific to our newest generation of veterans.
    The controversy around Walter Reed reminds Veterans for America of 
the squalid conditions of the hospitals and the inadequacy of care for 
the returning servicemembers more than 36 years ago. This topic was on 
the cover of the May 22, 1970 issue of Life magazine, which was the 
second-highest selling issue in the magazine's history.
    Today, the same story is being repeated for a new generation of war 
veterans. The recent scandals were noticed by many when the Washington 
Post gave the issue national attention, but the alarm bell first rang 
in a 2003 series by Mark Benjamin, then with United Press 
International, for which I helped to provide key information.
    With Benjamin's reporting, along with that of others, providing 
ample evidence of a broken, failing system, I am surprised that the 
nation has not expressed its outrage before now. That said, I am 
pleased that Congress has begun to execute its oversight authority on 
this critical issue.
    On March 5, 2007, the Washington Post reporters who published the 
series on the Walter Reed situation stated that they were flooded with 
e-mails, calls, and faxes from servicemembers and veterans recounting 
similar experiences in military and veterans' hospitals across the 
country. It was clear to these reporters that the system has failed.
    Veterans for America has also been dealing with tremendous numbers 
of servicemembers, veterans, and their families reaching out to our 
organization for help. Too often we have encountered unresponsive 
agencies. We have been painfully aware of the distress that exists 
amongst servicemembers and the need to address it. The situation 
requires immediate remedies, and the effort required will need 
commitment and leadership from the upper echelons of our government--
starting with you, our elected representatives.
    The face of the American soldier has changed since Vietnam. The 
average age of the servicemembers then was just over 19 years old. 
Today's military is much older. The average age of an active-duty 
soldier is 27 years. The Reserve and Guard soldier is even older: 
averaging 33 years.
    More than 155,000 women have served in Iraq and Afghanistan. Among 
their ranks are more than 16,000 single mothers. More than half of 
those deployed are married, and three out of every five deployed 
servicemembers have family responsibilities (i.e., a spouse and/or 
children).
    Recently the American Psychological Association released an 
excellent report stating that no serious study has yet been undertaken 
to define what these new factors mean in terms of the needs of 
returning servicemembers and their families.
    We are all too familiar with the failure to recognize the unique 
needs of each generation of veterans. For instance, it was not until a 
decade after the height of the Vietnam War that the Veterans 
Administration undertook the first study of Vietnam veterans. Years 
later the National Vietnam Veterans' Readjustment Study was 
commissioned. Post-traumatic stress disorder was not recognized as a 
mental health problem until 1980. We can only guess at the number of 
veterans whose lives were destroyed because no one understood their 
needs. In short, we failed an entire generation of veterans.
    What's happening today is new chapter in an old book. We have yet 
to begin to recognize the true needs of the current generation and 
create programs and services appropriate to their war-related problems.

          What have multiple deployments meant?
          What are the implications of traumatic brain injury 
        being the signature injury of this war?
          What are the effects of so many being constantly 
        exposed to a high degree of violence?
          What does it mean to have the unprecedented survival 
        rates of casualties?

    These questions--and many more--need answering.
    VFA is especially concerned that servicemembers and veterans are 
not being provided the mental healthcare they need. There are a number 
of pressing issues:

          A dramatic rise in less than honorable discharges, 
        and subsequent loss of VA healthcare and benefits,
          Overuse of ``personality disorders'' to discharge 
        veterans (e.g., use of chapters 5-13, 5-17, 14-12),
          Rise in disciplinary problems related to alcohol and 
        drug use, domestic violence, risk-taking behavior, motor 
        vehicle violations, and other war-related reintegration issues,
          Inadequate staffing in mental health, Medical 
        Evaluation Board-Physical Evaluation Board (MEB-PEB) case work, 
        social work, family care and ``seamless transition'' programs 
        into the VA network,
          Absence of consistently prompt mental health 
        referrals as part of the Post-Deployment Health Assessment 
        process, and
          Absence of Alcohol and Substance Abuse Programs 
        (ASAP) at all military bases.

    VFA also believes the VA's Veterans Benefits Administration (VBA) 
disability compensation claims process is completely broken.
    Many veterans do not receive their benefits in a timely and 
accurate manner. VBA's problems are linked strongly to the DoD's 
failure to manage their disability discharges, as was epitomized by the 
fiasco at Walter Reed. Just as America saw that active duty 
servicemembers were denied prompt evaluations and disability benefits, 
America demands that Congress and VA take immediate action so that no 
disabled veteran waits endlessly.
    Our nation was prepared for the return of troops after World War 
II. The quality and timelines of veterans' claims are not negotiable.
    If both DoD and VA are not overhauled soon, we will see the 
situation worsen when all of our 1.5 million deployed servicemembers 
eventually return home from the wars in Iraq and Afghanistan.
    Here are the facts:

          As of October 2006, more than 176,000 OEF/OIF 
        veterans filed claims against VBA.
          More than 200 OEF/OIF veterans become disabled every 
        day.
          The rise in the backlog of more than 100,000 claims 
        in 2 years is directly related to the flood of new Iraq and 
        Afghanistan war claims.
          VBA can expect between 700,000 and 1,000,000 claims 
        in the next 10 years.
          VBA can expect to pay between $67 and $127 billion in 
        the next ten years.
          As the war escalates and casualties climb, VBA can 
        expect even more claims.
          VBA has not presented a written plan of action so 
        that every VBA employee knows how to produce fast and accurate 
        results.

    These problems are especially severe for Members of the National 
Guard and Reserve.
    Here are some facts:

          37 percent of active duty veterans have filed for 
        disability compensation.
          Only 20 percent of those who served with National 
        Guard or Reserve units have filed such claims.
          8 percent of claims filed by active duty troops are 
        denied.
          18 percent of claims filed by Guard and Reserve 
        soldiers are denied.

    In short, while about half as many members of the Guard and Reserve 
file disability claims as compared to active duty veterans, these 
claims are rejected at twice the rate. These statistics beg the 
question: are our Members of the Guard and Reserve again being short-
changed compared to their active-duty brothers and sisters?
    VBA is broken in a variety of areas.

          It takes 6 months to decide original claims. VA's 
        stated goal is for this to be accomplished in 90 days.
          It takes 24 months to decide appealed claims; the 
        goal is 12 months.
          As of February 17, 2007, the total backlog of claims 
        was 558,000--402,000 are original claims and 156,000 are 
        appealed claims.
          This backlog is a disgrace. The message being sent is 
        that VBA doesn't care about disabled veterans.

    VBA's failures hurt veterans many ways:

          Lack of prompt and adequate VA healthcare,
          Inability to pay bills for food, utilities, etc.,
          Increase in credit problems,
          Rise in evictions and foreclosures, and
          Mounting homelessness.

    Here are some ``band-aid'' approaches that might be utilized to 
take care of some of the most pressing problems:
    First, the signal needs to be sent from the top that the VBA 
backlog will be reduced soon.
    After the tone is set, a number of steps should be taken, 
including:

        1.  Insist that VA and DoD better coordinate efforts and become 
        more proactive.
        2.  Hire additional VBA claims adjudication staff.
        3.  End the Post-Traumatic Stress Disorder (PTSD) ``second 
        signature'' policy.
        4.  Stop reviewing 72,000 PTSD cases.
        5.  End VA's efforts to narrow the definition of PTSD via 
        contract with the National Academy of Sciences.
        6.  Grant the presumption of a stressor for deployment to a war 
        zone.
        7.  Immediately produce quarterly reports on the number of 
        claims by OEF/OIF servicemembers (as required by S. 117). This 
        will allow VBA to conduct trend analysis and determine staffing 
        and budget needs specific for this cohort.
        8.  Provide sufficient VBA staff for all military treatment 
        facilities and bases so that the Benefits Delivery at Discharge 
        Program (BDD) is fully implemented.
        9.  Appoint an ombudsman with responsibility and authority to 
        fix transition problems between DoD and VA.
        10.  Define the war zone (also included in S. 117) so that VBA 
        knows which veterans are eligible for war-related benefits, for 
        data collection and for accurate reports and projections.
        11.  Hold executives accountable by eliminating bonuses and 
        terminating those who fail to perform.
        12.  Adopt mandatory electronic records at discharge given to 
        veteran and VA within 1 year.
        13.  Shift military ratings of disabled servicemembers from DoD 
        to VA and the BDD program.
        14.  Review and consider Professor Linda Bilmes's proposal to 
        streamline claims.
        15.  Allow all servicemembers a ``second look'' for PTSD, TBI, 
        VA healthcare, and VA claims assistance.

    We don't need more excuses. A claim delayed is a claim denied.
    To address these problems, VFA urges Members of the Senate to 
consider cosponsoring a House version of S. 117, the Lane Evans 
Veterans Health and Benefits Improvement Act of 2007 which:

          Requires face-to-face medical exams. DoD currently 
        requires servicemembers to answer a limited questionnaire to 
        determine if they need to be referred for treatment. Soldiers 
        are typically rushing to return home after a deployment and do 
        not necessarily give these questions sufficient attention. DoD 
        should, instead, conduct mandatory in-person physical and 
        mental health exams with every service Member 30 to 90 days 
        after deployment.
          Extends VA Mental Health Care. Currently, the VA 
        holds a 2-year window to allow newly returning veterans to 
        obtain free healthcare. Unfortunately, it can take many years 
        for symptoms of PTSD and other mental health problems to 
        manifest themselves. S. 117 provides a 5-year window for 
        veterans to receive a free assessment of mental health medical 
        needs by the VA.
          Defines the Global War On Terror (GWOT). To 
        accurately determine healthcare and benefit eligibility for 
        returning servicemembers, the GWOT needs to be explicitly 
        defined in statute. Currently, the Secretary of Defense is not 
        allowing some soldiers serving in GWOT territories to receive 
        combat-related medical benefits.
          Establishes a GWOT registry to track healthcare data. 
        Collect aggregate data on GWOT servicemembers and veterans to 
        monitor their healthcare and benefit use. The data will help 
        lead to better budget forecasting and avoid shortfalls. A 
        similar effort was undertaken after the Gulf War.
          Requires equal transition services for Guardsmen and 
        Reservists. A 2005 GAO report found that demobilization for 
        guardsmen and reservists is accelerated and these units receive 
        insufficient transition assistance.
          Requires Secure Electronic Records. DoD should 
        provide a full, secure electronic copy of all medical records 
        at the time of discharge.

    Again, Veterans for America appreciates the opportunity to submit a 
statement for this hearing. We reaffirm our desire to work with 
Congress and the relevant agencies in trying to address these critical 
needs, but it is important that I reiterate that we will not stop 
failing our servicemembers and veterans across-the-board until we take 
a step back, evaluate their unique needs. We must stop trying to 
squeeze our new military into a system designed for a previous 
generation.
    Thank you.

                                 
   Statement of Brady Van Engelen, Associate Director, Veterans for 
                                America
    Chairman Hall, Representative Lamborn, Members of the Subcommittee:
    Thank you for the opportunity to testify.
    On April 6th of 2004 I sustained a gunshot wound to the head in 
Baghdad while positioned at an observation post. First aid was 
immediately administered, and I was fortunate to have survived long 
enough to make it to the 28th Combat Support Hospital (CSH). The 
primary repairs and closures for my head were conducted while in 
theater at the 28th CSH. From there, I was medically evacuated to a 
military hospital in Landstuhl, Germany, where I was staged for 
recovery until I had regained enough strength to travel back to Walter 
Reed Army Medical Center to complete the recovery process.
    I arrived at Walter Reed Army Medical Center on April 14, 2004, 
where I was immediately asked if I wanted to be treated as an inpatient 
or outpatient. Wanting to spend time with family and loved ones, I 
chose to be an outpatient, at which point I was given the building 
number of the Mologne House and told to check in there. With no clue as 
to where the building was, I hopped onto a facility shuttle and asked 
if I could get a ride to the Mologne House to check in.
    The first 2 weeks of appointments I was fortunate enough to have my 
family and loved ones at my side to assist me through the bureaucratic 
maze that is outpatient care at Walter Reed. In one month's time, my 
rehabilitative care was completed, and I was told the Physical 
Evaluation Board (PEB) process would begin shortly thereafter.
    That was May 30, 2004.
    I didn't hear back about my case until December of 2004.
    Other than the research that I conducted on my own time, I was 
completely unaware of what my possibilities were and what to do next. 
Throughout the entire process I was the one who always initiated 
contact with the case managers and the hospital. If it weren't for my 
persistence, I could have gone unnoticed for months. There were just 
too many patients, and not enough case managers to oversee the process.
    The systemic problems that have highlighted Walter Reed in recent 
weeks have unfortunately trickled over to the Department of Veterans 
Affairs (VA). The VA is overwhelmed by the number of claims filed and 
patients needing attendance. We didn't prepare for this, and it's 
painfully evident. My generation is going to have to pay for this, and 
we will be paying for years and years.
    While at Walter Reed as an outpatient there was no outreach on 
behalf of the VA to inform me of benefits for myself and for my family. 
When troops were returning from WWII, there were VA claims specialists 
on the boats with the servicemen informing them of benefits that they 
were eligible for. We have lost that aggressive approach with today's 
servicemembers and veterans. Today, we are being asked to navigate the 
bureaucratic maze of DoD and VA on our own. I can assure you that this 
is no small feat. Shifting the burden from our government to those who 
serve has created a system where servicemembers and veterans are 
unaware of the benefits and programs promised to them upon enlistment.
    I understand that the VA has begun to more aggressively address the 
inpatients while they are recovering at medical facilities, but, as was 
the case at Walter Reed, only a small number of injured soldiers are 
benefiting. This is not acceptable.
    Many wounded servicemembers at other medical outpatient facilities 
throughout the country remain as uninformed as I was upon leaving the 
military. Servicemembers from my generation are becoming increasingly 
disenfranchised with a system that our government promised would help 
us heal and rehabilitate.
    Claims backlogs are currently at 180 days. A few years ago claims 
were half that. The families of servicemembers are suffering from this 
lack of preparation by our VA. They cannot call the bank, say they are 
waiting for a response on a claim, and ask for payments to be delayed 
for another 180 days. The passive nature of the VA regarding health and 
claims dispensation will only tarnish their perception amongst the 
military and their families. We may end up with an entire generation of 
veterans who have no faith in our VA because those running it--as well 
as those overseeing it--were unable to hold up their end of the 
bargain. This saddens me deeply.
     In closing, I'd sum up the problems with the VA claims process 
like this:
    I entered the VA system on January 29, 2005.
    That was 774 days ago.
    No one from the VA has contacted me yet to tell me how the system 
works.
    I urge the Members of this subcommittee to keep one question in 
mind as they consider how to repair this broken system:
    What is owed those who serve?
    While I do not claim to have all the answers to that question, I am 
confident that you will conclude that the answer is: More than 
servicemembers and veterans are receiving now.
     Thank you.

                                 
     Statement of Patrick Campbell, Legislative Director, Iraq and 
                    Afghanistan Veterans of America
    Mr. Chairman and Members of the House Subcommittee on Disability 
Assistance & Memorial Affairs, on behalf of the Iraq and Afghanistan 
Veterans of America (IAVA), thank you for this opportunity to address 
the issue of ``The Impact of OIF/OEF on the VA Claims Process.''
    My name is SGT Patrick Campbell and I am a combat medic for the DC 
National guard, an OIF vet and the Legislative Director for the Iraq & 
Afghanistan Veterans of America. IAVA is the nation's first and largest 
organization for Veterans of the wars in Iraq and Afghanistan. IAVA 
believes that the troops and veterans who were on the frontlines are 
uniquely qualified to speak about and educate the public about the 
realities of war, its implications on the health of our military, and 
its impact on the strength of our country.
    According to the Department of Veterans Affairs I am one of the 
54,000 OIF/OEF veterans they are guesstimating will seek care from the 
VA in 2007. In a briefing with Veteran Service Organizations the 
Department of Veterans Affairs stated that, ``263,000 of their current 
users'' are from the Global War on Terror and they expect an increase 
of 54,000 in FY 2007.
    In general a department's proposed budget is the clearest signal to 
the outside world of their priorities and their assumptions. Although 
IAVA sincerely applauds the Department of Veterans Affairs for removing 
certain onerous proposals from their FY08 budget proposal and 
requesting healthy increases, we believe that the VA's assumptions 
about future usage of the VA system from the soldiers fighting in the 
Global War on Terror are severely flawed.
    The administration's budget projections show a decrease in VA 
spending over the next 3 years. One can only assume that the VA is 
wishing/hoping/expecting the number of veterans demanding services to 
decrease or maintain their current levels. It is hard to argue with 
VA's accountants and their actuarial tables because they will cloak 
their assumptions in mounds of numbers, but when these numbers seem to 
defy common sense that is when the alarms must go off.
    If you remember one thing from this testimony today, remember that 
the VA has grossly underestimated the demand for their services once 
again. The soldiers are coming home and they will be asking for care. 
The question we must be asking ourselves, will it be ready for them?
    If anything the recent Walter Reed expose has taught us is that 
trying to treat and care for soldiers and veterans on a limited budget 
and limited oversight only has one logical conclusion, poor care. In 
the context of this specific hearing, soldiers are languishing while 
they wait for their claims to be processed. And woe to the veteran who 
does not file his/her paperwork correctly and gets denied, because they 
will be stuck in bureaucratic limbo for years.
    We also believe that the VA's current standard for evaluating the 
speed a veteran gets seen by a medical professional should not be a 
whopping 45 days or even 30 days. For veterans coming home, especially 
with mental health issues, a month is like an eternity. The standard 
should be 2 weeks or at least broken down into categories.
    Soldiers fight for their country, they should not be made to fight 
against their country.
    Many of the other organizations today who are testifying will be 
providing excellent statistics and solutions. IAVA stands firmly behind 
their recommendations. Our purpose here today is to convey a single 
message, that if you start with faulty assumptions you will end with 
poor results.
    This Committee must work with the Department of Veterans Affairs 
and the various veterans service organizations to formulate a realistic 
number of incoming veterans into the VA system over the next 5 years. 
Only then will we be able to hire to the correct number claims 
processors and medical staff to provide the quality of care these 
veterans deserve.

                                 
     Statement of Jon Soltz, Co-Founder and Chairman, VoteVets.org
    Thank you, Mr. Chairman, Congressman Lamborn, and Members of the 
Committee for inviting me here today to discuss this critically 
important issue.
    I am Jon Soltz, and I am the Co-Founder and Chairman of 
VoteVets.org, which is a leading organization of Iraq and Afghanistan 
Veterans. VoteVets.org was established to give voice to the 21st 
century patriots who have fought in these wars, and to raise concerns 
about the state of today's military preparedness as well as the 
resources and support available to servicemen and women when they 
return home.
    I myself am an Iraq war veteran. From May to September 2003, I 
served as a Captain during Operation Iraqi Freedom, deploying logistics 
convoys with the 1st Armored Division. During 2005, I was mobilized for 
365 days at Fort Dix, New Jersey, training soldiers for combat in 
Afghanistan and Iraq. I also served with distinction in the Kosovo 
Campaign as a Tank Platoon Leader between June and December 2000. Let 
me make clear, however, that today I am speaking for my organization 
and the troops and veterans we represent, not for the U.S. Army.
    I've also experienced, first-hand, many of the issues we'll be 
talking about today. After I returned from Iraq, I knew that I was 
mentally affected from the war. Eight months later, I went to the VA 
and asked for help. The nurse, who I'm close with to this day, told me 
I came to the right place. After a few tests, though, I was told that I 
just had something called ``Adjustment Disorder,'' and that I should 
come back in for counseling once a month, for 4 months. Maybe that was 
the right diagnosis, and maybe it wasn't. All I know is that I didn't 
feel that the diagnosis was based on any in-depth testing, and I'm not 
sure that my treatment was enough.
    Even worse, just a short time later, it was announced that the VA 
center I had been going to, in Pennsylvania, would be closed. I tried 
to attend the press conference to announce the closure, so I could 
learn more about what was going on, and was told that I could either 
leave on my own, or police would be called to escort me out. I hadn't 
even said a peep, or protested at the event. I simply wasn't allowed to 
watch.
    That's when I held my own first press conference, across the 
street, where I questioned to the media, why I was good enough to go 
and fight and risk my life for this country, but not good enough to 
deserve an explanation as to why my VA hospital was closing. That is 
when I made the decision that I would talk about these issues, until I 
was blue in the face, so that not only would veterans get answers, but 
we could see real fixes to the issues we face.
    The recent report in the Washington Post regarding Walter Reed's 
Building 18 set off a media and political firestorm here on Capitol 
Hill. Many in the media dramatically shook their heads in sorrow on 
television. Many Members of Congress started to call press conferences 
to express their dismay. Even the President expressed surprise and 
anger.
    I have to admit, as someone who has dealt with our veterans' care 
system, and talks on a daily basis to many others who have, I found it 
somewhat amusing that everyone seemed so surprised that the quality of 
care didn't meet the quality of service these troops and veterans gave. 
Those of us who have served have known for a long time about 
bureaucratic and capacity problems, especially at the VA. I want to 
make clear that I do not impugn the fine service those who work at the 
VA centers have given. They are all great people, and do heroic work. 
But, it is an overburdened and woefully underfunded system that has all 
too often tied their hands, and hurt America's veterans.
    Nonetheless, veterans care in this nation has not been up to snuff 
for a long time. Many veterans' organizations much older than 
VoteVets.org have been trying to get the media and politicians to pay 
attention for a long time. No one wanted to listen. In the end, what I 
find so sadly funny is that a few rats did in one day what we veterans 
haven't been able to do for years--get America's attention.
    It's important that we as a nation look at the larger issue here, 
though, and not get too bogged down in just the problems at Building 
18. That larger issue goes way past the Pentagon's hospitals, like 
Walter Reed, into the VA system.
    Are our current military obligations affecting the capacity of the 
VA to deal with an influx of vets? Absolutely. Last year, VoteVets.org 
did a poll of about 450 veterans of the wars in Iraq and Afghanistan, 
focusing both on the issues they faced in the field, and issues they 
faced at home. Here is some of what we found:
    Troops returned home, and many encountered emotional and physical 
health problems as well as economic hardship resulting from their 
service.

      One in four veterans has experienced nightmares since 
returning, including 33 percent of Army and Marine veterans and 36 
percent of combat veterans.
      A fifth of all veterans (21 percent) and a quarter of 
Army and Marines (26 percent) and ground combat veterans (27 percent) 
say they have felt more stress now than before they left for war.
      Among National Guard or Reserve veterans, 32 percent said 
their families experienced economic hardship; 25 percent feel more 
stress now than before the war; 32 percent experienced more extreme 
highs and lows; and 30 percent experienced nightmares.
      Twenty-six percent of all veterans have sought some 
service from the VA or a VA hospital, including 33 percent of 
Reservists and National Guard respondents.

    These numbers were compiled just last fall, so we believe those 
numbers have held, if not gotten worse, as the violence and chaos our 
troops have to deal with gets more intense. Nearly 1.5 million troops 
have now been deployed to Iraq or Afghanistan. So, to put our poll in 
real numbers, about 390,000 troops and veterans have or will seek care 
from the VA, if no more troops are deployed to the wars. Frankly, I 
think the numbers will be higher, for two reasons. First, the nature of 
this war lends itself to more mental trauma, because you are in a 360 
degree battlefield, where you truly feel hunted. This stress becomes 
worse as you are extended multiple times, which many troops have been. 
Second, we are using our National Guard and Reserve at a much greater 
level than we have ever, in any war. Those Guardsmen and Reservists are 
still not guaranteed healthcare, and many of them will not be working 
when they return home, so they'll have no insurance at all. Thus, the 
only option available to them will be VA services, meaning we'll surely 
see a huge spike in the levels of demand from Guardsmen and Reservists.
    If you talked to any veteran of Vietnam or the Gulf War, they'll 
tell you there were serious capacity issues with the VA before Iraq and 
Afghanistan. Since the start of the wars, the Bush administration has 
failed to adequately increase resources for the VA to meet the need. 
That's why Secretary Nicholson had to come back to Congress a while 
back and admit the agency was billions short. Though Congress acted 
fast to appropriate emergency funds for the VA, the agency doesn't get 
close to what it needs. According to the nation's top veterans groups, 
which put together The Independent Budget each year, the agency is 
still being shortchanged by about ten billion dollars in the latest 
budget proposal.
    If the President has his way, the agency's budget will be cut in 
2009 and 2010. God willing, we will have started to redeploy from Iraq 
by then. That will be precisely the time when hundreds of thousands of 
new veterans will flood the VA system. Will there be capacity problems? 
You can't possibly imagine.
    What does this mean in real terms? It means more frequent tales 
that I've heard since beginning VoteVets.org. I know one veteran, Josh 
Lansdale of Missouri. Josh served as an EMT in Iraq and came back with 
post-traumatic stress disorder and a busted ankle. He faced a 6 month 
wait to get the care he needed.
    Another young patriot, Tomas Young, is now wheelchair bound, 
paralyzed from the chest down, because he was shot in the spine while 
riding in a truck without the right armor. Every day, he takes a 
cocktail of pills just to get through the day. He's lucky enough to 
have a wife that brings him to his VA center on a regular basis, but 
Tomas tells me that the quality of care is never as consistent. 
Sometimes he has a good experience, and sometimes the VA just doesn't 
have the ability to deal with him. In short, Tomas can't depend on the 
system.
    I know of veterans who have to hold their prosthetics together with 
duct tape, because their VA center doesn't have anything that fits 
right. Veterans in rural areas I know of have to travel for hours to 
get the care they need. Veterans like Tyson Johnson from Alabama, who 
lost a kidney and had shrapnel in his lungs from a mortar attack, often 
couldn't stand the long drive to the VA hospital, followed by the long 
wait for care, so he didn't go at all, a lot of the time.
    Again, the people employed by the VA are not the problem. The 
problem is twofold: Budgetary and systemic. But, the problem right now 
is a walk in the park compared to what the situation will be like in a 
year or two, if nothing substantial is done.
    I'm hopeful that Congress and the Bush administration will finally 
address these issues. I hope this Committee works with your colleagues 
on the Committee on Armed Services, to examine the serious transition 
problems there when a troop leaves the Pentagon system and enters the 
VA system.
    Those of us who served have kept our end of the bargain. We've 
risked our bodies and lives in service. Now it is time for you to do 
your jobs, and keep the government's end of the deal by ensuring that 
the Department of Veterans Affairs is fully funded, and that 
bureaucratic SNAFUs are eliminated. No more excuses. No more delays. We 
veterans deserve nothing less.
    Thank you again for allowing me to testify here today. I sincerely 
hope that this marks a new day in how we address the issues facing 
veterans care in this nation. And though much of what I said today I've 
said before, for the first time, I feel that the American people are 
listening. Most importantly, I hope you will commit to keeping this 
process moving, and not end your concern with today's hearing. It will 
be important that all of us--those of us on this panel, those of you in 
Congress, and the administration all work together to really make a 
difference and give America's veterans the level of care they deserve.

                                 
  Statement of Ronald R. Aument, Deputy Under Secretary for Benefits, 
 Veterans Benefits Administration, U.S. Department of Veterans Affairs
    Mr. Chairman and Members of the Subcommittee, it is my pleasure to 
be here today to discuss the Disability Compensation Program and our 
efforts to meet the needs of servicemembers and veterans of Operations 
Iraqi and Enduring Freedom. I am pleased to be accompanied by Mr. 
Michael Walcoff, VBA's Associate Deputy Under Secretary for Field 
Operations.
    The Veterans Benefits Administration (VBA) is responsible for 
administering a wide range of benefits and services for veterans, their 
families, and their survivors. We manage a life insurance program that 
consistently ranks among the best in the nation. We promote 
homeownership through the loan guaranty program and help veterans and 
their dependents seek greater education and economic opportunities 
through the highly successful Montgomery GI Bill program and other 
educational programs. We assist low-income disabled and elderly wartime 
veterans and their survivors through our pension programs. For 
qualifying veterans with disabilities related to their military 
service, our Vocational Rehabilitation and Employment Program provides 
both rehabilitation and training and assists them in reentering the 
civilian workforce. We are proud of our achievements in all these vital 
areas.
    At the heart of our mission is the Disability Compensation Program, 
which provides monthly benefits to veterans who are disabled as a 
result of injuries or illness incurred or aggravated during their 
military service. Over 2.7 million veterans of all periods of service 
currently receive VA compensation benefits. Last year, we provided 
veterans with decisions on over 774,000 disability claims. We also 
performed more than 1.3 million other award actions and benefits 
adjustments of all types (e.g., dependency adjustments, death pension 
awards, income adjustments, burial awards, and so forth.) to maintain 
the accounts of the beneficiaries already on the rolls. Additionally, 
we handled over 6.6 million phone calls; conducted over a million 
interviews; briefed more than 390,000 service persons; and conducted 
nearly 65,000 hours of outreach to military members, former prisoners 
of war, homeless, minorities, women, and other targeted groups.
    Today I will discuss the challenges we face in providing timely, 
accurate, and consistent determinations on veterans' claims for 
disability compensation. These challenges include the growth of the 
disability claims workload, the increasingly complex nature of that 
workload, the rise in appellate processing, and the absolute need to 
produce accurate benefit decisions. I will also discuss some of the 
actions we are taking to improve claims processing and our efforts to 
expedite the processing of claims from Operations Iraqi and Enduring 
Freedom veterans.
Growth of Disability Claims Workload
    The number of veterans filing initial disability compensation 
claims and claims for increased benefits has increased every year since 
FY 2000. Disability claims from returning Afghanistan and Iraq war 
veterans as well as from veterans of earlier periods of war increased 
from 578,773 in FY 2000 to 806,382 in FY 2006. For FY 2006 alone, this 
represents an increase of nearly 228,000 claims or 38 percent over the 
2000 base year. It is expected that this high level of claims activity 
will continue.
    The primary factors leading to the sustained high levels of claims 
activity are: more beneficiaries on the rolls with resulting additional 
claims for increased benefits; Operation Iraqi Freedom (OIF) and 
Operation Enduring Freedom (OEF); improved and expanded outreach to 
active-duty servicemembers, guard and reserve personnel, survivors, and 
veterans of earlier conflicts; and implementation of Combat Related 
Special Compensation (CRSC) and Concurrent Disability and Retired Pay 
(CDRP) programs by the Department of Defense (DoD).
    Ongoing hostilities in Afghanistan and Iraq are expected to 
continue to increase the VA compensation workload. Earlier studies by 
VA indicate that the most significant indicator of new claims activity 
is the size of the active force. Nearly 1.46 million active-duty 
servicemembers, members of the National Guard, and reservists have thus 
far been deployed in the Global War on Terrorism. Over 689,000 have 
returned and been discharged.
    Whether deployed to foreign-duty stations or maintaining security 
in the United States, the authorized size of the active force and the 
mobilization of thousands of citizen soldiers means that the size of 
the total force on active duty has significantly increased. The claims 
rate for veterans of the Gulf War Era, which began in 1991 and includes 
veterans who are currently serving in Operations Iraqi Freedom and 
Enduring Freedom, is significant. Veterans and survivors of the Gulf 
War Era currently comprise the second largest population of veterans 
receiving benefits after Vietnam Era veterans.
    The number of veterans receiving compensation has increased by 
almost 400,000 since 2000--from just over 2.3 million veterans to 
nearly 2.7 million in 2006. This increased number of compensation 
recipients, many of whom suffer from chronic progressive disabilities 
such as diabetes, mental illness, and cardiovascular disabilities, will 
continue to stimulate more claims for increased benefits in the coming 
years as these veterans age and their conditions worsen. Reopened 
disability compensation claims currently comprise 54 percent of VBA's 
disability claims receipts.
    VA is committed to increased outreach efforts to active-duty 
personnel. These outreach efforts result in significantly higher claims 
rates. Original claim receipts rose from 111,672 in FY 2000 to 217,343 
in FY 2006--a 95-percent increase. We believe this increase is directly 
related to our aggressive outreach programs; we believe this increasing 
trend will continue.
    Combat-Related Special Compensation (CRSC) and Concurrent Retired 
and Disability Pay (CRDP) further contribute to increased claims 
activity for VBA. It is now potentially advantageous for the majority 
of our military retirees, even those with relatively minor 
disabilities, to file claims with VA and to receive VA disability 
compensation, since their waived retired pay may be restored and not be 
subject to waiver in the future under these new DoD programs. Today 
more than 54,000 military retirees receive CRSC and approximately 
194,000 retirees receive CRDP. The number of military retirees 
receiving VA compensation has increased since the advent of these 
programs to over 840,000. The total number of retirees as of the end of 
FY 2006 was approximately two million, meaning that over 40 percent of 
all U.S. military retirees now receive VA benefits.
Complexity of Claims Processing Workload
    The increase in claims receipts is not the only change affecting 
the claims processing environment. The greater number of disabilities 
veterans now claim, the increasing complexity of the disabilities being 
claimed, and changes in law and Court decisions affecting the decision 
process pose additional challenges to timely processing the claims 
workload. The trend toward increasingly complex and difficult-to-rate 
claims is expected to continue for the foreseeable future.
    A claim becomes more complex as the number of directly claimed 
conditions increases because of the larger number of variables that 
must be considered and addressed. Multiple regulations, multiple 
sources of evidence, and multiple potential effective dates and 
presumptive periods must be considered. The effect of these factors 
increases proportionately and sometimes exponentially as the number of 
claimed conditions increases. Additionally, as the number of claimed 
conditions increases, the potential for additional unclaimed but 
secondary, aggravated, and inferred conditions increases as well, 
further complicating the preparation of adequate and comprehensive 
Veterans Claims Assistance Act of 2000 (VCAA) notice and rating 
decisions. Since veterans are able to appeal decisions on specific 
disabilities to the Board of Veterans' Appeals (Board) and the United 
States Court of Appeals for Veterans Claims (CAVC), the increasing 
number of claimed conditions significantly increases the potential for 
appeal.
    VA's experience since 2000 demonstrates that the trend of 
increasing numbers of conditions claimed is system-wide, not just at 
special intake locations such as Benefits Delivery at Discharge (BDD) 
sites. The number of cases with eight or more disabilities claimed 
increased from 21,814 in FY 2000 to 51,260 in FY 2006, representing a 
135-percent increase over the 2000 base year and a 15-percent increase 
over FY 2005.
    The VCAA has significantly increased both the length of time and 
the specific requirements of claims development. VA's notification and 
development duties increased as a result of VCAA, adding more steps to 
the claims process and lengthening the time it takes to develop and 
decide a claim. Since enactment, we are required to review the claims 
at additional points in the decision process.
Appellate and Non-Rating Workload
    As VBA renders more disability decisions, a natural outcome of that 
process is more appeals filed by veterans and survivors who disagree 
with some part of the decision made on their case. Appeals of regional 
office decisions and remands by the Board and the CAVC following appeal 
are some of the most challenging types of cases because of their 
complexity and the growing body of evidence necessary to process these 
claims. In recent years, the appeal rate on disability determinations 
has climbed from a historical rate prior to 2000 of approximately 7 
percent of all disability decisions to the current rate of 11 percent. 
There are more than 130,000 appeals now pending in the regional offices 
and the Appeals Management Center. This number includes cases requiring 
processing prior to transfer of the appeal to the Board and cases 
remanded by the Board and the CAVC following an appeal. There are over 
30,000 additional appeals pending at the Board.
Claims Processing Accuracy and Consistency
    In 2001, then Secretary of Veterans Affairs Anthony J. Principi, 
established the VA Claims Processing Task Force to examine a wide range 
of issues affecting the processing of claims. A product of the Task 
Force Report was the Claims Processing Improvement (CPI) model. 
Implementation of the CPI model established a consistent organizational 
structure across all regional offices. Work processes were reengineered 
and specialized teams established to reduce the number of tasks 
performed by individual decisionmakers, establish consistency in 
workflow and process, and incorporate a triage approach to incoming 
claims.
    Implementation of this model provided a strong foundation for 
improving both the accuracy and consistency of our claims decisions. We 
also established an aggressive and comprehensive program of quality 
assurance and oversight to assess compliance with VBA claims processing 
policy and procedures and assure consistent application. As a result of 
these efforts, our accuracy has risen over the last 4 years from 81 
percent to 89 percent.
    We are also identifying unusual patterns of variance in claims 
adjudication by diagnostic code, and then reviewing selected 
disabilities to assess the level of decision consistency among and 
between regional offices. These studies are used to identify where 
additional guidance and training are needed to improve consistency and 
accuracy, as well as to drive procedural or regulatory changes. Site 
surveys of regional offices also address compliance with procedures.
Training
    Critical to improving claims accuracy and consistency is ensuring 
that our employees receive the essential guidance, materials, and tools 
to meet the ever-changing and increasingly complex demands of their 
decisionmaking responsibilities. To that end, VBA has deployed new 
training tools and centralized training programs that support accurate 
and consistent decisionmaking.
    New hires receive comprehensive training and a consistent 
foundation in claims processing principles through a national 
centralized training program called ``Challenge.'' After the initial 
centralized training, employees follow a national standardized training 
curriculum (full lesson plans, handouts, student guides, instructor 
guides, and slides for classroom instruction) available to all regional 
offices. Standardized computer-based tools have been developed for 
training decisionmakers (69 modules completed and an additional 8 in 
development). Training letters and satellite broadcasts on the proper 
approach to rating complex issues are provided to the field stations. 
In addition, a mandatory cycle of training for all Veterans Service 
Center employees has been developed consisting of an 80-hour annual 
curriculum.
Consolidation of Specialized Operations
    The consolidation of specialized processing operations for certain 
types of claims has been implemented to provide better and more 
consistent decisions, and we continue to look for ways to achieve 
additional organizational efficiencies through further consolidation. 
Three Pension Maintenance Centers were established to consolidate the 
complex and labor-intensive work involved in ensuring the continued 
eligibility and appropriateness of benefit amounts for pension 
recipients. We are exploring the centralization of all pension 
adjudications in these Centers.
    In November 2001, a Tiger Team was established at the Cleveland 
Regional Office to adjudicate the claims of veterans age 70 and older. 
VBA also established an Appeals Management Center to consolidate 
expertise in processing remands from the Board of Veterans' Appeals. In 
a similar manner, a centralized Casualty Assistance Unit was 
established to process all in-service death claims. VBA also 
established two Development Centers in Phoenix and Roanoke to assist 
regional offices in obtaining the required evidence and preparing cases 
for decision, and centralized the processing of all radiation claims to 
the Jackson Regional Office.
    The Benefits Delivery at Discharge (BDD) Program provides 
servicemembers with briefings on VA benefits, assistance with 
completing applications, and a disability examination before leaving 
service. The goal of this program is to deliver benefits within 60 days 
following discharge. VBA has consolidated the rating aspects of our BDD 
program, which will bring greater consistency of decisions on claims 
filed by newly separated veterans.
Inventory Reduction
    VBA is aggressively pursuing measures to decrease the pending 
inventory of disability claims and shorten the time veterans must wait 
for decisions on their claims. Our pending inventory of rating related 
claims is currently about 400,000 claims, and average processing time 
is 177 days. However, all 400,000 claims in our inventory should not be 
considered as ``backlog;'' this number includes all claims, whether 
pending only a few days or a number of months. Under the very best of 
circumstances, it takes about four months to fully develop a claim 
(obtain military and private medical records, schedule necessary 
medical examinations and receive results, evaluate evidence, etc.). 
Based on our projected receipts of 800,000 claims and our timeliness 
performance target of 145 days, our expected level of pending inventory 
with no backlog would be approximately 318,000 claims.
    To balance the inventory of disability claims across regional 
offices, VBA implemented a ``brokering'' strategy in which rating cases 
are sent from stations with high inventories to other stations with the 
capacity to process additional rating work. Brokering allows the 
organization to address simultaneously the local and national inventory 
by maximizing use of available resources.
    We are increasing staffing levels to reduce the pending inventory 
and provide the level of service expected by the American people. We 
began aggressively hiring additional staff in FY 2006, increasing our 
on-board strength by over 580 employees between January 2006 and 
January 2007. With a workforce that is sufficiently large and correctly 
balanced, VBA can successfully meet the needs of our veterans.
    Our plan is to continue to accelerate hiring and fund additional 
training programs for new staff this fiscal year. We are recruiting now 
and will increase our on-board strength by an additional 400 employees 
by the end of June. However, because it requires an average of two to 
three years for our decisionmakers to become fully productive, 
increased staffing levels do not produce immediate production 
improvements. Performance improvements from increased staffing are more 
evident in the second and third years. We have therefore also increased 
overtime funding this year and recruited retired claims processors to 
return to work as reemployed annuitants in order to increase decision 
output.
Priority Processing for OIF/OEF Veterans
    Since the onset of the combat operations in Iraq and Afghanistan, 
VA has provided expedited and case-managed services for all seriously 
injured Operations Iraqi and Enduring Freedom (OIF/OEF) veterans and 
their families. This individualized service begins at the military 
medical facilities where the injured servicemembers return for 
treatment, and continues as these servicemembers are medically 
separated and enter the VA medical care and benefits systems. VA 
assigns special benefits counselors, social workers, and case-managers 
to work with these servicemembers and their families throughout the 
transition to VA care and benefits systems, and to ensure expedited 
delivery of all benefits.
    Last month the Secretary of Veterans Affairs announced a new 
initiative to provide priority processing of all OIF/OEF veterans' 
disability claims. This initiative covers all active duty, National 
Guard, and Reserve veterans who were deployed in the OIF/OEF theatres 
or in support of these combat operations, as identified by the 
Department of Defense (DoD). This will allow all the brave men and 
women returning from the OIF/OEF theatres who were not seriously 
injured in combat, but who nevertheless have a disability incurred or 
aggravated during their military service, to enter the VA system and 
begin receiving disability benefits as soon as possible after 
separation.
    We have designated our two Development Centers in Roanoke and 
Phoenix and three of our Resource Centers as a special ``Tiger Team'' 
for processing OIF/OEF claims. The two Development Centers will obtain 
the evidence needed to properly develop the OIF/OEF claims. The three 
Resource Centers, located in Muskogee, San Diego, and Huntington, will 
rate OIF/OEF claims for regional offices with the heaviest workloads. 
Medical examinations needed to support OIF/OEF veterans' claims are 
also being expedited.
    We are expanding our outreach programs for National Guard and 
Reserve components and our participation in OIF/OEF community events 
and other information dissemination activities. An OIF/OEF Team is 
being established at VBA Headquarters to address all OIF/OEF 
operational and outreach issues at the national level and to support 
and assist newly designated OIF/OEF Managers at each regional office. 
The VBA OIF/OEF Team will also direct and coordinate national Memoranda 
of Understanding (MOU) with each of the Reserve Components to formalize 
relationships with them, mirroring the agreement between VA and the 
National Guard Bureau signed in 2005. Having an MOU with each Reserve 
Component will ensure that VA is provided service medical records and 
notified of ``when and where'' reserve Members are available to be 
briefed during the demobilization process and at later times.
    In order to ensure that VA benefits information is provided to all 
separating Guard and Reserve servicemembers, we will work with DoD to 
discuss the possibility of expanding VA's role in DoD's military pre-
separation process. Specifically, we will assess the feasibility of 
providing a new ``Claims Workshop'' in conjunction with VA benefits 
briefings and Disabled Transition Assistance (DTAP) briefings. At such 
workshops, groups of servicemembers would be instructed on how to 
complete the general portions of the VA application forms. Following 
the general instruction segment, personal interviews would be conducted 
with those applying for individual VA benefits.
    Expediting the claims process is critical to assisting OIF/OEF 
veterans in their transition from combat operations back to civilian 
life. VA is also continuing to focus on reducing the pending workload 
and improving the overall timeliness of processing for all veterans.
    Mr. Chairman, this concludes my testimony. I greatly appreciate 
being here today and look forward to answering your questions.

                                 
                   MATERIAL SUBMITTED FOR THE RECORD

                How the U.S. Is Failing Its War Veterans

                   By Dan Ephron and Sarah Childress

                Newsweek Magazine, March 5, 2007, Issue

    After returning from Iraq in late 2005, Jonathan Schulze spent 
every day struggling not to fall apart. When a Department of Veterans 
Affairs clinic turned him away last month, he lost the battle. The 25-
year-old Marine from Stewart, Minn., had told his parents that 16 men 
in his unit had died in 2 days of battle in Ramadi. At home, he was 
drinking hard to stave off the nightmares. Though he managed to get a 
job as a roofer, he was suffering flashbacks and panic attacks so 
intense that he couldn't concentrate on his work. Sometimes, he heard 
in his mind the haunting chants of the muezzin--the Muslim call to 
prayer that he'd heard many times in Iraq. Again and again, he'd relive 
the moments he was in a Humvee, manning the machine gun, but helpless 
to save his fellow Marines. ``He'd be seeing them in his own mind, 
standing in front of him,'' says his stepmother, Marianne.
    Schulze, who earned two Purple Hearts for wounds sustained in Iraq, 
was initially reluctant to turn to the VA. Raised among fighters--
Schulze's father served in Vietnam and over the years his older brother 
and six stepbrothers all enlisted in the military--Jonathan might have 
felt asking for help didn't befit a Marine.
    But when the panic attacks got to be too much, he started showing 
up at the VA emergency room, where doctors recommended he try group 
therapy. He resisted; he didn't think hearing other veterans' 
depressing problems would help solve his own. Then, early last month, 
after more than a year of anxiety, he finally decided to admit himself 
to an inpatient program. Schulze packed a bag on Jan. 11 and drove with 
his family to the VA center in St. Cloud, about 70 miles away. The 
Schulzes were ushered into the mental-health-care unit and an intake 
worker sat down at a computer across from them. ``She started typing,'' 
Marianne says. ``She asked, `Do you feel suicidal?' and Jonathan said, 
`Yes, I feel suicidal'.'' The woman kept typing, seemingly unconcerned. 
Marianne was livid. ``He's an Iraqi veteran!'' she snapped. ``Listen to 
him!'' The woman made a phone call, then told him no one was available 
that day to screen him for hospitalization. Jonathan could come back 
tomorrow or call the counselor for a screening on the phone.
    When he did call the following day, the response from the clinic 
was even more disheartening: the center was full. Schulze would be No. 
26 on the waiting list. He was encouraged to call back periodically 
over the next 2 weeks in case there was a cancelation. Marianne was 
listening in on the conversation from the dining room. She watched 
Jonathan, slumped on the couch, as he talked to the doctor. ``I heard 
him say the same thing: I'm suicidal, I feel lost, I feel 
hopelessness,'' she says. Four days later Schulze got drunk, wrapped an 
electrical cord around a basement beam in his home and hanged himself. 
A friend he telephoned while tying the noose called the police, but by 
the time officers broke down the door, Schulze was dead.
    How well do we care for our wounded and impaired when they come 
home? For a country amid what President Bush calls a ``long war,'' the 
question has profound moral implications. We send young Americans to 
the world's most unruly places to execute our National policies. About 
50,000 servicemembers so far have been banged up or burned, suffered 
disease, lost limbs or sacrificed something less tangible inside them. 
Schulze is an extreme example but not an isolated one, and such stories 
are raising concerns that the country is failing to meet its most basic 
obligations to those who fight our wars.
    The question of after-action care also has strategic consequences. 
Iraq marks the first drawn-out campaign we've fought with an all-
volunteer military. In practice, that means far fewer Americans are 
taking part in this war (12 percent of the total population 
participated in World War II, 2 percent in Vietnam and less than half 
of 1 percent in Iraq and Afghanistan). Already, the war has made it 
harder for the military to recruit new soldiers and more expensive to 
retain the ones it has. If we fall down in the attention we provide 
them, who's to say volunteers will continue coming forward?
    The issue of veterans' care jumped into the headlines last week 
when The Washington Post published a series about Walter Reed Army 
Medical Center in Washington, D.C. The stories revealed decay and 
mismanagement at the hospital, and provoked shock and concern among 
politicians in both parties. ``The doctors were fantastic,'' a Walter 
Reed patient, 21-year-old Marissa Strock, tells NEWSWEEK. ``But some of 
the nurses and other staffers here have been a nightmare.'' Strock 
suffered multiple injuries, including broken bones, a lacerated liver 
and severely bruised lungs, when her Humvee rolled over an improvised 
explosive device on Nov. 24, 2005. She later had both her legs 
amputated. ``I think a big part of [Walter Reed's problems] is they 
just don't have enough people to adequately handle all the wounded 
troops coming in here every day,'' she says. (Walter Reed did not 
respond to requests for comment about Strock's case.) The Pentagon 
responded swiftly to the Post series. It vowed to investigate what went 
wrong and immediately sent a repair crew to repaint and fix the damage 
to the aging buildings.
    The revelations were especially shocking because Walter Reed is one 
of the country's most prestigious military hospitals, often visited by 
prominent politicians, including the president. But it is just one part 
of a vast network of hospitals and clinics that serve wounded soldiers 
and veterans throughout the country. A NEWSWEEK investigation focused 
not on one facility but on the services of the Department of Veterans 
Affairs, a 235,000-person bureaucracy that provides medical care to a 
much larger number of servicemen and women from the time they're 
released from the military, and doles out their disability payments. 
Our reporting paints a grim portrait of an overloaded bureaucracy 
cluttered with red tape; veterans having to wait weeks or months for 
mental-health care and other appointments; families sliding into debt 
as VA case managers study disability claims over many months, and the 
seriously wounded requiring help from outside experts just to 
understand the VA's arcane system of rights and benefits. ``In no way 
do I diminish the fact that there are veterans out there who are coming 
in who require treatment and maybe are not getting the treatment they 
need,'' White House Deputy Press Secretary Tony Fratto tells NEWSWEEK. 
``It's real and it exists.''
    The system's shortcomings are certainly not deliberate; no 
organization is perfect. Some of the VA's hospitals have been cited as 
among the best in the country, and even in extreme cases, the picture 
is seldom black-and-white. Before he killed himself, Schulze was seen 
by the VA 46 times, VA Secretary James Nicholson told Congress this 
month. (He did not elaborate on what care Schulze received.)
    Yet, as the number of veterans continues to grow, critics worry the 
VA is in a state of denial. In a broad sense, the situation at the VA 
seems to mirror the overall lack of planning for the war. ``We know the 
VA doesn't have the capacity to process a large number of disability 
claims at the same time,'' says Linda Bilmes, a Harvard public-finance 
professor and former Clinton administration Commerce Department 
official. Last month Bilmes released a 34-page study on the long-term 
cost of caring for veterans from Iraq and Afghanistan. She projects 
that at least 700,000 veterans from the global war on terror (GWOT) 
will flood the system in the coming years.
    As it is, for some veterans the wait can be agonizing. Patrick 
Feges was on hold for 17 months until his first disability check from 
the VA came through. An Eagle Scout from Sugar Land, Texas, Feges 
enlisted in 2003 and found himself in Ramadi a year later. In October 
2004, a mortar exploded on his base about 50 yards from him, spraying 
him with shrapnel, slicing his intestines and severing a major artery. 
Feges lost consciousness and was flown to Walter Reed, where he 
underwent surgery. Long scars trail down his legs and midsection. At 
the hospital a fellow Texan came to visit: President Bush stood by his 
bed and chatted with him.
    Feges is a polite 22-year-old with a military manner. He addresses 
strangers by last name and an honorific, even when prodded to drop the 
formality. ``I was brought up right, sir,'' he explains. But his voice 
rises slightly when he describes his ordeal with the VA. A case officer 
in Houston processed Feges's request for disability in September 2005, 
then lost his application. Feges was summoned to repeated medical 
evaluations at the Houston center, but a year later he was still 
waiting for a check. By then, Feges had been accepted to culinary 
school in Austin and did not want to put off his studies. His mother, 
an elementary-schoolteacher, took a second job at a local McDonald's to 
help support him.
    For discharged servicemembers, the VA serves two functions: it 
provides medical care for service-related conditions at its clinics and 
hospitals across the country, and it reviews claims for disability 
benefits--chiefly, the monthly payments wounded veterans get for the 
rest of their lives. The review process can be complicated. It requires 
veterans to prove, through documents and sometimes through the 
testimony of fellow soldiers, that their afflictions are a result of 
their time in the military. Feges listed on his application all the 
ways he'd been affected by the wounds: he'd lost mobility in his ankles 
and knees, he suffered regular stomach cramps from the intestinal 
wound, he lost sensation in his hands and legs, he had trouble standing 
for long periods. NEWSWEEK presented the VA with the names and details 
of the veterans whose stories are told here, but a spokesman for the 
agency declined to comment on individual cases, citing doctor-patient 
confidentiality. Speaking generally, Dr. Michael Kussman, the VA's 
acting under secretary for health, tells NEWSWEEK that the department 
is trying to reach veterans earlier, as they approach their date of 
discharge, and that he does not believe Iraq and Afghanistan are 
straining resources severely. ``The impact on the VA so far has been 
relatively small,'' Kussman says. ``It has not kicked the system over 
in our budget and in our ability to absorb it.''
    Still, a jump in disability claims in recent years has created a 
bottleneck. Daniel Cooper, the VA's under secretary for benefits, 
confirmed his department was coping with a backlog of 400,000 
applications and appeals; 75 percent of them were still within a 
``reasonable'' reviewing timeframe, he says. Yet, most of those claims 
were filed by veterans of previous wars (a veteran can file or appeal a 
claim even decades after discharge). As more servicemen and women 
return from Iraq, the backlog is likely to increase. Cooper says the 
average waiting time for a benefits claim is about 6 months. NEWSWEEK 
turned up a number of veterans who'd waited longer. Keri Christensen, a 
National Guard veteran and a mother of two, says the VA in Chicago took 
10 months to process her application. Rory Dunn, who nearly died in an 
IED attack outside Fallujah, says his application was delayed because, 
among other things, the VA mixed up his file with that of a Korean war 
veteran.
    Feges's claim was finally approved last month: after NEWSWEEK and 
the advocacy group Veterans for America began looking into his case, he 
got a call from a VA official in Waco, Texas, with the news that his 
money would come through. Last week he received back pay to the date of 
his application.
    The compensation is not huge. A veteran with a disability rating of 
100 percent gets about $2,400 a month--more if he or she has children. 
A 50 percent rating brings in around $700 a month. But for many 
returning servicemen burdened with wounds, it is, initially at least, 
their sole income. ``When I started school, that's when it became 
really hard not to have that money,'' says Feges.
    One reason to worry about a crush of new vets at the VA has to do 
with the proportion of wounded to dead Americans in Iraq. Though we 
tend to mark the grim timeline of the war by counting fatalities, what 
really distinguishes this conflict is how many soldiers don't die, but 
suffer appalling injuries. In Vietnam and Korea, about three Americans 
were wounded for every one who died. The ratio in WWII was nearly 2-1. 
In Iraq, 16 soldiers are wounded or get sick for every one who dies. 
The yawning ratio marks progress: better body armor and helmets are 
shielding more soldiers from fatal wounds. And advanced emergency care 
is keeping more of the wounded alive. The VA's Kussman says that 
soldiers who survive the first few minutes after an explosion have a 98 
percent chance of surviving altogether. But that means an increased 
burden on the VA's health-care system.
    Two such survivors are Albert and Connie Ross. Albert lost a leg 
when a rocket-propelled grenade landed close to him in August 2004 
while he was on patrol in Baghdad. Connie lived through a 2004 suicide 
bombing in Mosul but suffered multiple fractures and burns. When the 
two met in a hallway at Brooke Army Medical Center in San Antonio, 
Texas, Connie thought she noticed a certain swagger in Albert's walk. 
``He had this weird dip in his walk, so I asked him, `Why are you pimp-
walking in a hospital?' And he said: `I'm not pimp-walking, I'm an 
amputee.' I was so embarrassed.'' The two married earlier this year and 
are expecting a child.
    Though he's been in the VA system for more than 2 years now, Albert 
still doesn't have a primary-care doctor. Without one, getting 
appointments with specialists can be difficult. ``You're supposed to be 
assigned one right away,'' says Albert, who now lives in San Antonio. 
``I'm not frustrated so much as worried--worried if and when something 
does go wrong, something will happen with one of my legs. . . . They 
[primary-care doctors] are the ones who have to fill out a work-order 
form; it's impossible to do anything without them.''
    One thing Albert desperately wants to do: get a new prosthetic. 
He's one of the early African-American amputees of the war. But the 
fake limb he's been given matches the skin tone of a Caucasian. It so 
embarrasses Albert that he always wears a sock over it--even if he's in 
sandals. ``He's very self-conscious about it,'' says Connie. ``It 
really bothers him.''
    Albert's situation is probably atypical. The VA says a huge 
majority of veterans get primary-care doctors within 30 days. But 
people inside the system do concede there's a shortage of mental-health 
workers at many of the VA's hospitals and clinics across the country. 
And Schulze is not the only veteran to commit suicide after being 
turned away. In a similar case in 2004, the VA twice neglected to treat 
Iraq veteran Jeffrey Lucey for posttraumatic stress disorder (the 
second time because he was told alcoholics must dry out before being 
accepted to an inpatient program). By the time a VA counselor tracked 
down a bed in a New York facility with a built-in detox program, Lucey 
had already hanged himself. ``The system doesn't treat mental health 
with the same urgency it treats general healthcare,'' says a senior VA 
manager who did not want to be named talking about shortcomings in the 
agency.
    Even when veterans get to the right doctors, understanding how to 
leverage what they need from the system can be mind-bending. Tonia 
Sargent, whose husband, Kenneth, nearly died in a sniper attack in 
Najaf in 2004, says no one ever sat her down and explained the benefits 
and how to access them. Her husband's brain injury made him often 
incapable of understanding his own care. Key decisions fell to her 
alone. It's a ``don't ask, don't tell system,'' she says.
    Kenneth is a Marine master sergeant who'd been in the Corps for 
nearly 18 years. He was on his second tour in Iraq when a sniper bullet 
ricocheted off the metal hatch on his vehicle and hit him directly 
below the right eye, grazing the front of his brain and exiting near 
his left ear. Among other things, he was diagnosed with traumatic brain 
injury, which has become the signature wound of the Iraq war. Tonia had 
to fight the Marine Corps to keep him from being discharged, figuring 
he'd get better medical care if he remained in active service. But some 
of his treatment has been outsourced to the VA.
    One of the tricks she learned early on was to demand photocopies of 
her husband's records--every exam, every X-ray, every diagnosis--and 
personally carry the file from appointment to appointment. ``I don't 
know if there is a more formal protocol for transferring documents, but 
I know that what I brought . . . . was definitely put to use.'' When 
Sargent was transferred to the VA's lauded Polytrauma Center in Palo 
Alto, Calif., doctors there encouraged her to go home to Camp Pendleton 
near San Diego and treat his stay at the hospital as if it was a 
deployment. ``After 2 weeks, they asked me how long I was planning to 
stay with my husband,'' she says. ``They said it was his rehab, not 
mine. But I needed to learn how to care for him, and he suffered from 
extreme anxiety without me.'' She pushed back, staying in Palo Alto 
until he completed his care.
    How can the system improve? Bilmes, who authored the Harvard study, 
proposes at least one drastic change--automatically accepting all 
disability claims and auditing them after payments have begun. (The VA 
says that would be an irresponsible use of taxpayer money.) Other 
critics have focused on raising the VA's budget, which has been 
proposed at $87 billion for 2008. More money could go toward hiring 
more claims officers and more doctors, easing the burden now and 
preparing the VA for the end of the Iraq war, when soldiers return home 
en masse.
    But veterans' support groups and even some former and current VA 
insiders believe there's a reluctance in the Bush administration to 
deal openly with the long-term costs of the war. (All told, Bilmes 
projects it could cost as much as $600 billion to care for GWOT 
veterans over the course of their lifetimes.) That reluctance, they 
say, trickles down to the VA, where top managers are politically 
appointed. Secretary Jim Nicholson, a decorated Vietnam War veteran who 
was chosen by Bush in 2005, tends to be the focus of this criticism.
    The senior VA manager who did not want to be named criticizing 
superiors told NEWSWEEK: ``He's a political appointee and he needs to 
respond to the White House's direction.'' Steve Robinson of Veterans 
for America levels the accusation more directly. ``Why doesn't the VA 
have a projection of casualties for the wars? Because it would be a 
political bombshell for Nicholson to estimate so many casualties.'' The 
VA denies political considerations are involved in its budgeting or 
planning. Nicholson declined to be interviewed but Matt Burns, a 
spokesman for the VA, called Robinson's comments ``nonsensical and 
inflammatory,'' adding: ``The VA, in its budgeting process, carefully 
prepares for future costs so that we can continue to deliver the 
quality healthcare and myriad benefits veterans have earned.''
    Fratto, the White House deputy press secretary, says money is not 
the problem. He points out the VA has had a hard time filling positions 
in some remote parts of the country. ``You need to find people who are 
trained in PTSD and other disorders that are affecting veterans and 
find those who are willing to go to places where they are needed.''
    As is often the case in America when government institutions 
falter, however, community groups are already stepping into the void. 
Veterans of Foreign Wars has advocates helping vets negotiate the VA 
bureaucracy, much the way health facilitators in the private sector 
help consumers get the most from their health insurance. Robinson, of 
Veterans for America, has pulled together teams of volunteers--
physicians, psychologists, lawyers--who give vets free services when 
the local VA branch falls down. At his office recently, he was 
coordinating a traumatic-brain-injury screening with a private doctor 
for a veteran who'd been denied access to VA care. The fact that 
Americans are coming forward doesn't absolve the VA of its obligation 
to provide first-rate care for veterans. Most of the wounded's problems 
just can't be solved by private citizens and groups, no matter how well 
meaning. But it does serve to remind us that we should take better care 
of veterans wounded in the line of duty as they make their way home, 
and try to remake their lives.
With Jamie Reno, Eve Conant, John Barry, Richard Wolffe, Karen 
        Springen, Jonathan Mummolo and Ty Brickhouse

                       Still Hurting Photographs

                         Pictures by Ethan Hill

    How well does the United States care for its wounded and impaired 
when they come home? For a country engaged in what President Bush calls 
a `long war,' the question has profound moral implications. About 
50,000 servicemembers so far have been banged up or burned, suffered 
disease, lost limbs or sacrificed their mental well-being while 
implementing American policies in dangerous places. The stories of 
these soldiers raise concerns that the country is failing to meet its 
most basic obligations to those who fight its wars.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    Albert Ross: He was on foot patrol in Baghdad when a rocket-
propelled grenade exploded near him. That was over 2 years ago, and 
Ross still doesn't have a primary care doctor.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    Connie Ross: During her rehab, she was sitting in her wheelchair in 
the hallway of the hospital, when she met the man she'd eventually 
marry. Now she and Albert Ross, pictured in the previous slide, are 
expecting their first child.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    Eric Edmundson: A bomb blast ruptured this 26-year-old father's 
spleen. Military doctors inserted a catheter that accidentally tickled 
his heart, enough trauma to stop it--and deprive his brain of oxygen--
for 30 minutes. The resulting damage--near-total lack of muscle 
control--was bad enough to require therapy outside the VA system.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    Keri Christensen: Since coming home from Iraq, the mother of two 
has struggled with emotional issues. She's haunted by nightmares, has 
imaginary conversations with her husband and rarely leaves the house.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    Rory Dunn: Shrapnel ripped through Dunn's unarmored Humvee, causing 
traumatic brain injury, the signature wound of the Iraq war. He was so 
severely hurt that the triage doctor initially set the 24-year-old 
aside to die.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    Patrick Feges: Shrapnel tore into his intestines and cut a major 
artery. While the 22-year-old waited 17 months for his disability check 
to come, his mother took a second job at McDonald's to help support 
him.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    Marissa Strock: The 21-year-old lost both of her legs after her 
Humvee rolled over an IED in Iraq. The others on board, whose names she 
tattooed on her back, died. The trauma didn't end once she got to the 
hospital.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


    John Newport: The discs in his back became compressed when he 
manned a truck-mounted machine gun--now he walks with a cane and wears 
a nerve stimulator to moderate pain. These injuries have still not been 
verified by the VA, more than 2 years later. He also suffers from PTSD, 
and has had flashbacks of an Iraqi girl he saw run over by an American 
vehicle--she reminded him of his daughter.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 



                                 

      Pomona Veteran Shares Story of Fighting for Health Benefits

                             By Hema Easley

        The Journal News, (Original Publication: March 13, 2007)

    GOSHEN, N.Y.--Vietnam War veteran Ted Wolf tells a saga of 
government apathy in providing him treatment for cancer, which he 
likely developed because of exposure to chemicals during the war.
    His saga ended because of Rep. John Hall, D-Dover Plains, who 
intervened with the Department of Veterans Affairs to get Wolf his due 
benefits.
    In the wake of revelations of substandard treatment for veterans at 
the Walter Reed Army Medical Center, Wolf's case is not alone. In fact, 
the backlog of veterans' benefit claims has grown to more than 630,000, 
said Hall, who is the chair of the Subcommittee on Disability 
Assistance and Memorial Affairs.
    ``You get the feeling that the VA doesn't care,'' said Wolf, 62, a 
Pomona resident, speaking at a news conference yesterday in Hall's 
office.
    His comments came a day before Hall holds a House Veterans Affairs 
subcommittee hearing on the healthcare needs of veterans of the Iraq 
and Afghanistan wars, and their impact on the ability of the VA to 
process disability claims.
    The hearing will also examine reports of claims rating 
discrepancies between active duty and Reserve veterans.
    Wolf and Hall blamed the VA bureaucracy, inadequate staffing and 
lack of information sharing between the Department of Defense and the 
VA for the backlog.
    In addition, Hall said, the ratio of wounded-to-killed in the Iraq 
war is 15-1, several times the ratio in previous wars. More military 
men and women are surviving injuries because of better medical care on 
the battlefield, thereby putting pressure on the system.
    ``It's only fair that we pick up the bill,'' said Hall, who 
estimated that the cost of taking care of veterans would rise to $1 
trillion.
    ``When our soldiers and military personnel return home and need 
help, they should get the assistance they have earned, without delay,'' 
Hall said.
    Wolf shared his story yesterday at Hall's office to illustrate how 
many veterans have to struggle to get benefits, and how he was helped 
by the congressman's office.
    After being diagnosed with prostate cancer in September 2002, Wolf 
initially didn't think to apply to the VA for help. He didn't think he 
was eligible, and on his doctor's advice he went to Memorial Sloan 
Kettering Cancer Center in New York City.
    But browsing on the Internet one day, he read about the suspected 
link between prostate cancer and Agent Orange, a chemical that he and 
many other servicemembers had been exposed to during the Vietnam War. 
His wife, Harriet, had suffered seven miscarriages before their only 
daughter was born, and Wolf thought that that might also have been 
linked to the chemical.
    But when Wolf approached the VA, he was put on a 6-month waiting 
list for a physical based upon which VA would decide if he was 
eligible.
    ``There is a bureaucracy doing needless physicals,'' said Wolf, a 
former realtor. ``The cancer is in my bones. It will not come up in a 
physical.''
    After an initial physical, Wolf was recalled for another physical 
in six months. While Wolf waited, the VA reduced his pension from 
$2,300 a month to $600, saying that his cancer was in remission.
    There are an estimated 18,000 veterans in Rockland County. About 
6,000 are enrolled in the VA's health clinic.
    ``The backlog of cases is phenomenal,'' said Jerry Donnellan, 
director of the county's Veterans Service Agency. ``We've had people 
literally die waiting to have their cases adjudicated.''
    Help finally came to Wolf when he approached Hall's office, and it 
intervened to expedite his case.
    Earlier this year, Wolf's pension was raised to $2,900. He was also 
reimbursed for all medical expenses since June, which totaled $19,000,
    ``I was extremely pleased with the care and rapid response,'' said 
Wolf.
    But, he said, ``We shouldn't need to contact a congressman. The 
process should be easier.''

                                 

                 Vietnam Vet Fights for Fellow Soldiers

                             By Greg Bruno

                  Times Herald-Record, March 13, 2007

    GOSHEN--Three and a half decades after dodging bullets in the 
jungles of Vietnam, Ted Wolf is still fighting for fellow soldiers.
    But now his enemies are cancer, politics and a foundering veterans' 
health-care system.
    ``My concern is for the young guys coming back from war today,'' 
said Wolf, 62, as he detailed his 5-year odyssey through the Department 
of Veterans Affairs. ``They shouldn't have to wait (for care),'' he 
said, choking back tears. ``There's enough stress. They shouldn't have 
to wait.''
    As the wars in Iraq and Afghanistan chew up American soldiers, 
creating the largest pool of wounded veterans since the Vietnam era, 
the backlog of disability claims is skyrocketing, lawmakers and 
veterans' advocates say.
    There are more than 630,000 claims waiting to be processed by the 
VA, according to congressional estimates. That number will only 
increase as servicemembers return from America's latest war.
    ``I'm here, my staff, we're here to fight for veterans to get their 
due. But it absolutely shouldn't be necessary,'' said Rep. John Hall, 
D-Dover Plains, who joined Wolf during a news conference yesterday in 
Goshen.
    ``It's easy to say you support the troops, but the way you do it is 
by putting up the money and getting it done,'' the congressman said.
    Problems with veterans' medical care reached a boil last month when 
The Washington Post detailed the unsanitary and decrepit living 
conditions at Walter Reed Army Medical Center.
    But woes within the Department of Defense and VA health-care 
systems run deeper than one Army hospital in Washington.
    In testimony last week, Cynthia A. Bascetta, director of healthcare 
for the Government Accountability Office, told a House Subcommittee 
that veterans returning from Iraq and Afghanistan often fall through 
the medical cracks.
    Many veterans are not screened for mental health problems, leading 
to undiagnosed conditions, the GAO said. Other oversights include poor 
military recordkeeping and payment issues that force financial burdens 
on veterans.
    Fixing the system won't come cheap. As of March 1, more than 24,000 
servicemembers had been injured during fighting in Iraq and 
Afghanistan, according to the Defense Department. Hall said long-term 
care estimates for the nation's veterans top $1 trillion.
    ``Disability benefits is a hot topic, and the quality of care our 
active soldiers and veterans are getting has been revealed ``to have 
some serious difficulties,'' Hall said.
    Wolf knows firsthand how broken the system is: His run-in with a 
bumbling VA began in 2002, when he was diagnosed with prostate cancer. 
Wolf was eligible for coverage within the VA system because prostate 
cancer is one of four cancers linked to exposure to Agent Orange, a 
defoliant used by the U.S. military during the Vietnam War.
    But when the VA wrongly declared Wolf to be in remission, his 
disability benefits were slashed by 60 percent, to about $600 a month, 
he said. Even though his cancer never stopped eating at his bones and 
skull, it took congressional intervention from Hall to get benefits 
restored.
    ``We should not need to have a congressperson to make the process 
easier,'' he said. Returning soldiers ``should be processed 
immediately.''
What's Next?
    Rep. John Hall and Members of a Veterans' Affairs subcommittee will 
hear testimony in Washington today on how to reduce the backlog of 
veterans' claims. The hearing will also examine reports of care 
discrepancies between active and reserve duty veterans.
    Vietnam veteran Ted H. Wolf, left, speaks yesterday at a news 
conference about problems with veterans' healthcare and benefits 
alongside Rep. John Hall at the Orange County Government Center in 
Goshen.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 


                     Times Herald-Record/TOM BUSHEY

                                 

             Veterans Face Vast Inequities Over Disability

                      By Ian Urbina and Ron Nixon

                     New York Times, March 9, 2007

    WASHINGTON, March 8--Staff Sgt. Gregory L. Wilson, from the Texas 
National Guard, waited nearly 2 years for his veterans' disability 
check after he was injured in Iraq. If he had been an active-duty 
soldier, he would have gotten more help in cutting through the red 
tape.
    Allen Curry of Chicago has fallen behind on his mortgage while 
waiting nearly two years for his disability check. If he had filed his 
claim in a state deploying fewer troops than Illinois, Mr. Curry, who 
was injured by a bomb blast when he was a staff sergeant in the Army 
Reserve in Iraq, would most likely have been paid sooner and gotten 
more in benefits.
    Veterans face serious inequities in compensation for disabilities 
depending on where they live and whether they were on active duty or 
were members of the National Guard or the Reserve, an analysis by The 
New York Times has found.
    Those factors determine whether some soldiers wait nearly twice as 
long to get benefits from the Department of Veterans Affairs as others, 
and collect less money, according to agency figures.
    ``The V.A. is supposed to provide uniform and fair treatment to 
all,'' said Steve Robinson, the director of veteran affairs for 
Veterans for America. ``Instead, the places and services giving the 
most are getting the least.''
    The agency said it was trying to ease the backlog and address 
disparities by hiring more claims workers, authorizing more overtime 
and adding claims development centers.
    The problems partly stem from the agency's inability to prepare for 
predictable surges in demand from certain states or certain categories 
of servicemembers, say advocates and former department officials. 
Numerous government reports have highlighted the agency's backlog of 
disability claims and called for improvements in shifting resources.
    ``It's Actuary Science 101,'' said Paul Sullivan, who until last 
March monitored data on returning veterans for the V.A. ``When 5,000 
new troops get deployed from California, you can logically expect a 
percent of them will show up at the V.A. in California in a year with 
predictable types of problems.''
    ``It makes no sense to wait until the troop is already back home to 
start preparing for them,'' Mr. Sullivan said. ``But that's what the 
V.A. does.''
    Veterans' advocates say the types of bureaucratic obstacles 
recently disclosed at Walter Reed Army Medical Center are eclipsed by 
those at the Veterans Affairs division that is supposed to pay soldiers 
for service-related ills. The influx of veterans from the Iraq war has 
nearly overwhelmed an agency already struggling to meet the healthcare, 
disability payment and pension needs of more than three million 
veterans.
    Stephen Meskin, who retired last year as the V.A.'s chief actuary, 
said he had repeatedly urged agency managers to track data so they 
could better meet the needs of former soldiers. ``Where are the new 
vets showing up?'' Mr. Meskin said he kept asking. ``They just 
shrugged.''
    Agency officials say they have begun an aggressive oversight effort 
to determine if all disability claims are being properly processed and 
contracted for a study that will examine state-by-state differences in 
average disability compensation payments.
    ``V.A.'s focus is to assure consistent application of the 
regulations governing V.A. disability determinations in all states,'' 
the department said in a written statement.
    Many new veterans say they are often left waiting for months or 
years, wondering if they will be taken care of.
    Unable to work because of post-traumatic stress disorder and back 
injuries from a bomb blast in Iraq in 2004, Specialist James Webb of 
the Army ran out of savings while waiting 11 months for his claim. In 
the fall of 2005, Mr. Webb said, he began living on the streets in 
Decatur, Ga., a state that has the 10th-largest backlog of claims in 
the country.
    ``I should have just gone home to be with family instead of trying 
to do it on my own,'' said Mr. Webb, who received a Bronze Star for his 
service in Iraq. ``But with the post-traumatic stress disorder, I just 
didn't want any relationships.''
    After waiting 11 months, he began receiving his $869 monthly 
disability check and he moved into a house in Newnan, Ga. About 3 weeks 
ago, Mr. Webb moved back home to live with his parents in Kingsport, 
Tenn.
    The backlogs are worst in some states sending the most troops, and 
discrepancies exist in pay levels.
    Illinois, which has deployed the sixth-highest number of soldiers 
of any state, has the second-largest backlog. The average disability 
payment for Illinois veterans--$7,803 a year--is among the lowest in 
the nation, according to 2005 V.A. data.
    In Pennsylvania, which has sent the fourth-highest number of 
troops, the claims office in Pittsburgh is tied for second for longest 
backlogs, where 4 out of 10 claims have been pending for more than 6 
months. Veterans from this state on average receive relatively low 
payments, $8,268 per year, according to 2005 V.A. data. Comparable 2006 
data were not available.
    The agency's inspector general in 2005 examined geographic 
variations in how much veterans are paid for disabilities, finding that 
demographic factors, like the average age of each state's veteran 
population, played roles. But the report also pointed to the subjective 
way that claims processors in each state determined level of 
disability.
    Staffing levels at the veterans agency vary widely and have not 
kept pace with the increased demand. The current inventory of 
disability claims rose to 378,296 by the end of the 2006 fiscal year. 
The claims from returning war veterans plus those from previous periods 
increased by 39 percent from 2000 to 2006. During the same period, the 
staff for handling claims has remained relatively flat, a problem the 
department highlighted in its 2008 proposed budget. The department 
expects to receive about 800,000 new claims in 2007 and 2008 each.
    ``It's clear to everyone here that the system overall is struggling 
and some veterans are waiting far too long for decisions,'' Senator 
Larry E. Craig, Republican of Idaho, said Wednesday at a hearing before 
the Senate Veterans' Affairs Committee.
    The growing strains on the veterans agency have affected some 
soldiers more than others.
    While the Reserve and National Guard have sent a disproportionate 
number of soldiers to the war, the average annual disability payment 
for those troops is $3,603, based on 2006 V.A. data for unmarried 
veterans with no dependents. Active-duty soldiers on average receive 
$4,962.
    Though the V.A. acknowledged that there were discrepancies, 
officials also said they believed that a significant factor might be 
length of service. Active-duty soldiers generally serve longer, and 
therefore more suffer from chronic diseases or disabilities that 
develop over time. Many who served in the Guard think they are losing 
the battle against the bureaucracy.
    ``We take a harder toll,'' said Mr. Wilson, the Texan, referring to 
the fate of reservists and Guard troops compared with active duty 
soldiers.
    He said that last month he received his disability check for his 
back injuries but only after a 21-month wait and the intervention of a 
congressman and a colonel.
    When active-duty soldiers near discharge, they have access to far 
more programs offering assistance with benefits than do reserve and 
National Guard soldiers, according to veterans' advocates.
    ``The active-duty guys, they get those resources,'' Mr. Wilson 
said. ``We don't.''
    He said that while active-duty soldiers often received medical 
disability evaluations in about 30 days, many reservists he knew waited 
2 years or more to get an initial appointment. Active-duty personnel 
also routinely received legal advice about appeals and other issues 
from military lawyers, while reservists had to request those hearings, 
he said.
    For years, the V.A.'s inspector general, the Government 
Accountability Office, Members of Congress and veterans' advocates have 
pointed out the need to improve how the V.A. tracks data on soldiers as 
they are deployed and when they are injured. That would help prepare 
for their future needs and ease delays in processing health and benefit 
claims.
    In 2004, a system was designed to track soldiers better, prepare 
for surges in demand and avoid backlogs. But the system was shelved by 
program officials under Secretary Jim Nicholson for financial and 
logistical reasons, V.A. officials said Thursday at a hearing before 
the House Veterans' Affairs Committee.
    The V.A., which has said it has an alternate tracking system nearly 
operational, depends on paper files and lacks the ability to download 
Department of Defense records into its computers.
    President Bush has appointed a commission to investigate problems 
at military and veterans hospitals.
    For Mr. Curry, the reservist from Chicago who has fallen behind on 
his mortgage payments, his previous life as a $60,000-a-year postal 
worker is a fading memory. ``It's just disheartening,'' he said. ``You 
feel like giving up sometimes.''
    Richard G. Jones contributed reporting from Trenton, Bob Driehaus 
from Cincinnati, and Sean D. Hamill from Pittsburgh.


        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 



    James Webb waited 11 months for benefits and began living on the 
streets. Now he lives at his parents' house with his son, Christian.

                                 

THE ECONOMIC COSTS OF THE IRAQ WAR: An Appraisal Three Years after the 
                      Beginning of the Conflict\1\
---------------------------------------------------------------------------

    \1\ Paper prepared for presentation at the ASSA meetings, Boston, 
January 2006. The views expressed here are solely those of the authors, 
and do not represent those of any institution with which they are 
currently affiliated, or with which they have been affiliated in the 
past.
---------------------------------------------------------------------------

    Linda Bilmes, Kennedy School of Government, Harvard University,

   and Joseph E. Stiglitz, University Professor, Columbia University,

                              January 2006


----------------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
   The views expressed in the KSG Faculty Research Working Paper Series are those of the author(s) and do not
    necessarily reflect those of the John F. Kennedy School of Government or of Harvard University. Copyright
                    belongs to the author(s). Papers may be downloaded for personal use only.
----------------------------------------------------------------------------------------------------------------


    Three years ago, as America was preparing to go to war in Iraq, 
there were few discussions of the likely costs. When Larry Lindsey, 
President Bush's economic adviser, suggested that they might reach $200 
billion, there was a quick response from the White House: That number 
was a gross overestimation.\2\ Deputy Defense Secretary Paul Wolfowitz 
claimed that Iraq could ``really finance its own reconstruction,'' 
apparently both underestimating what was required and the debt burden 
facing the country. Lindsey went on to say that ``The successful 
prosecution of the war would be good for the economy.'' \3\
---------------------------------------------------------------------------
    \2\ OMB Director Mitch Daniels is reported to have said that 
Lindsey's estimates were ``very, very high.'' Both he and Secretary of 
Defense Rumsfeld estimated the costs in the range of $50-60 bn, some of 
which they believed would be financed by other countries.
    \3\ Wall Street Journal, September 15, 2002.
---------------------------------------------------------------------------
    Many aspects of the Iraq venture have turned out differently from 
what was purported before the war: There were no weapons of mass 
destruction, no clear link between Al Qaeda and Iraq, no imminent 
danger that would warrant a pre-emptive war. Whether Americans were 
greeted as liberators or not, there is evidence that that they are now 
viewed as occupiers. Stability has not been established. Clearly, the 
benefits of the War have been markedly different from those claimed.
    So too for the costs. It now appears that Lindsey was indeed 
wrong--by grossly underestimating the costs. Congress has already 
appropriated approximately $357 billion for military operations, 
reconstruction, embassy costs, enhanced security at U.S. bases and 
foreign aid programs in Iraq and Afghanistan. This total, which covers 
costs through the end of November 2005, includes $251 bn for military 
operations in Iraq, $82 bn for Afghanistan and $24 bn for related 
foreign operations, such as reconstruction, embassy safety and base 
security.\4\ These costs have been rising throughout the war. Since FY 
2003, the monthly average cost of operations has risen from $4.4 bn to 
$7.1 bn--the costs of operations in Iraq have grown by nearly 20% since 
last year (whereas Afghanistan was 8% lower than last year).\5\ The 
Congressional Budget Office has now estimated that in their central, 
mid-range scenario, the Iraq war will cost over $266 billion more in 
the next decade, putting the direct costs of the war in the range of 
$500 billion\6\
---------------------------------------------------------------------------
    \4\ Congressional Research Service Report for Congress, ``The Cost 
of Iraq, Afghanistan and Enhanced Base Security Since 9/11'', Amy 
Belasco, Defense Specialist, October 7, 2005. This covers funding in 
P.L. 107-117, 107-206, 1207-115, 108-7, 108-11, 108-106, 108-199, 108-
287, 109-13, 108-447, and the recent FY 2006 Continuing Resolution 
(109-77) which provides $45 bn for the 6-week period starting 9/30/05. 
DOD will need additional funds to cover the rest of the year.
    \5\ Ibid.
    \6\ The CBO estimated costs for the period of 2005-2014 under three 
scenarios. The estimates were $179 bn, $266 bn, and $392 bn, 
respectively. We have conservatively used their middle scenario. CBO 
2005.
---------------------------------------------------------------------------
    These estimates, however, underestimate the War's true costs to 
America by a wide margin. In this paper, we attempt to provide a range 
of estimates for what those costs have been, and are likely to be. Even 
taking a conservative approach, we have been surprised at how large 
they are. We can state, with some degree of confidence, that they 
exceed a trillion dollars.
    Providing even rough order of magnitude estimates of the costs 
turns out to be very difficult, for a number of reasons. There are 
standard problems in cost allocation; there are future costs associated 
with the Iraq war that are not included in the current calculations; 
there are marked differences between social costs and prices paid by 
the government (and it is only the latter which traditionally get 
reflected in the cost estimates); and there are macro-economic costs, 
associated both with the increase in the price of oil and the Iraq war 
expenditures.
    Consider, as an example, accounting for the value of the more than 
two thousand American soldiers who have died since the beginning of the 
war, and the more than sixteen thousand who have been wounded. The 
military may quantify the value of a life lost as the amount it pays in 
death benefits and life insurance to survivors--which has recently been 
increased from $12,240 to $100,000 (death benefit) and from $250,000 to 
$500,000 (life insurance). But in other areas, such as safety and 
environmental regulation, the government values a life of a prime age 
male at around $6 million, so that the cost of the American soldiers 
who have already lost their lives adds up to around $12 billion\7\
---------------------------------------------------------------------------
    \7\ Government agencies have estimated the value of a life at $6.1m 
(Environmental Protection Agency), and $5.5m (Department of 
Transportation). The value of a life for victims of 9/11 were estimated 
in a range from $2-$11million.
---------------------------------------------------------------------------
    The standard estimates of the death costs also omit the cost of the 
nearly one hundred American civilian contractors\8\ and the four 
American journalists that have been killed in Iraq, as well as the cost 
of coalition soldiers, and non-American contractors working for U.S. 
firms.
---------------------------------------------------------------------------
    \8\ Although the actuarial value of those lives should, presumably, 
have been included in the contractors' bid price when undertaking the 
contract.
---------------------------------------------------------------------------
    The military values the cost of those injured by what their medical 
treatment costs and disability pay; and current accounting only 
reflects current payments in disability, not the present discounted 
value of (expected) future payments; a full cost analysis includes both 
the present discounted value of all future payments, as well as the 
difference between the disability pay and what the individual might 
have earned--and even this ignores the enormous compensation that would 
have been paid for pain and suffering had this been a private injury.
    Costs of recruiting have increased enormously--and even after the 
war ends, there is reason to believe that compensation will have to be 
increased, including for Reserves and National Guard. Many Reservists, 
particularly those who are older, supporting families and established 
in their careers, underestimated the risks of being called to fight a 
war abroad and the ability of the government to force them to extend 
their tours of duty and even to serve second and third tours. The 
majority of these Reservists have suffered a significant loss in wages 
due to serving in Iraq. By the same token, wages currently paid the 
military almost surely represent an underestimation of a fair market 
wage, given what individuals would have needed to make them willingly 
undertake the job in Iraq. In fact, we know from the wages being paid 
by contractors performing similar work what the free market wage for 
such services are, and they are a multiple of what the American 
military get paid.\9\
---------------------------------------------------------------------------
    \9\ For example, experienced security guards working for Blackwater 
Security, who guarded senior officials in the Coalition Provisional 
Authority, were earning up to $1,000 per day. The majority of such 
guards were former members of the military.
---------------------------------------------------------------------------
    Even determining the current ``direct'' expenditures turns out to 
be a difficult task.\10\ The Administration has provided a number, 
based on the current costs of operations in Iraq. We are interested 
here in finding the total economic cost, the value of the resources 
used, and it is not always clear that standard accounting and budgetary 
figures reflect that. For instance, the faster depreciation or 
destruction of equipment already owned by the government is clearly 
part of the cost of the war. Standard cost allocation procedures would 
attribute a substantial fraction of the overhead in the Pentagon to the 
War; by devoting its attention to Iraq, it has less time to work on 
other issues, to prepare for other problems.
---------------------------------------------------------------------------
    \10\ A recent report by the Government Accountability Office (GAO-
05-767) states that the Defense Department has ``lost visibility'' on 
over $7 bn of funding and reports several cases where obligations 
exceeded appropriations in 2004, including $4.3 bn in Army operation 
and maintenance. A recent report by the Congressional Research Service 
cites the difficulty of tracking Pentagon expenditures in Iraq, because 
(unlike the State Department and other agencies), DOD does not allocate 
funds by operation or mission until after the fact. ``Defense 
Department witnesses periodically give average monthly costs or `burn 
rates' for Iraq and Afghanistan but DOD has not provided Congress with 
a complete or consistent record showing those rates over time or total 
amounts for each operation each year.'' CRS, 10/7/05.
---------------------------------------------------------------------------
    A true costing of the war would focus, of course, on the 
incremental cost; to the extent that the actual War substitutes for 
expensive ``war games,'' the incremental cost is less than the actual 
money spent. In our analysis we have subtracted the direct savings, 
such as policing the ``no-fly'' zone in Iraq, from the cost of the war.
    This paper attempts to provide a more complete reckoning of the 
costs of the Iraq War than have previously been provided, using 
standard economic and accounting/budgetary frameworks. Of course, a 
final tally will have to wait until the end, and even the President has 
made it clear that there is no clear end in sight. And even then, it 
will be years before we can be sure about whether our estimates of 
future costs--increased costs of recruiting or payments for disability 
or the healthcare costs of the injured veterans--were accurate.
    Of necessity, the numbers, especially of future expenditures, are 
estimates, and we have tried to avoid a false sense of accuracy by 
rounding our numbers from the more precise estimates provided by 
econometric and statistical studies, when those are employed. We 
provide several sets of numbers. A ``conservative'' estimate that we 
think is excessively conservative. We realize that the numbers provided 
here may be controversial. They provide a picture of costs that is much 
larger than that which has been provided by the administration, 
especially before the War. We also provide a second estimate, which, 
while still conservative, is more reasonable. We refer to this as our 
``moderate'' estimate.
    Our estimates, for instance, assume that we have 136,000 troops 
stationed in Iraq in 2006. The Administration has recently announced a 
troop reduction, from 160,000 due to the pre-election buildup, to 
140,000, a number which is still larger than the numbers employed in 
our analysis.
    We have not been able to quantify many of what may turn out to be 
the most important costs of the Iraq venture. There is a value in 
military preparedness, and it is the reason for investing so heavily in 
defense. By most accounts, America's ability to engage in a second 
front at the current time is greatly diminished. At the beginning of 
the War, there was a great deal of talk about winning the hearts and 
minds of those in the Middle East. Recent opinion polls reflecting 
public opinion in the Arab world show that exactly the opposite has 
happened. Some American businesses have even claimed that anti-
Americanism spawned by the Iraq War has had an effect on their sales 
and profits. America's credibility has been diminished: If some time in 
the future another American President were to claim that he had solid 
evidence based on intelligence that there was a threat, that evidence 
is more likely to be treated with skepticism. America has always prided 
itself in fighting for human rights; but America's credentials have 
been tarnished by Abu Ghraib and Guantanamo. These are among the many 
costs of the Iraq War that we do not attempt to quantify, but which 
should clearly be counted in any assessment of the Iraq War.
    Nor have we included in this paper any of the costs borne directly 
by other countries, either directly (as a result of military 
expenditures) or indirectly (as a result of the increase in the price 
of oil.) Most importantly, we have not included the costs of the war to 
Iraq, either in terms of destruction of property (infrastructure, 
housing) or the loss of lives.\11\ Clearly, including these would 
increase the cost of the war substantially--perhaps by an order of 
magnitude.
---------------------------------------------------------------------------
    \11\ We have not included the cost of the deaths of coalition 
soldiers and contractors, nor of the Iraqis themselves. Even the most 
conservative estimates put the loss of life at a multiple of that of 
the United States, with some estimates putting the numbers in excess of 
30,000, or even 100,000. Of those, over 3,000 Iraqi deaths have been 
among Iraqi military and police who are supporting coalition forces.
---------------------------------------------------------------------------
    The paper is divided into two parts. In the first, we provide an 
estimate of the ``direct'' expenditures, and provide adjustments to 
reflect the true social costs of the resources deployed. The second 
provides an estimate of the macro-economic costs; the effects of the 
War on the overall performance of the economy, taking into account both 
the effects of the expenditures themselves and of the increased price 
of oil, some of which at least should be attributed to the War.
I. Budgetary Costs to the U.S. Government
    The budgetary costs of the war reflect the huge scale of operations 
that are being undertaken. For the first half of 2005, there were over 
200,000 U.S. military personnel stationed in Iraq and Kuwait (which 
serves as a staging ground for Iraq). To date, over 550,000 troops have 
served in Iraq in a combined total of approximately one million tours 
of duty.\12\
---------------------------------------------------------------------------
    \12\  Many troops have served two or three tours of duty.
---------------------------------------------------------------------------
    The costs of the war in Iraq that have been reported in the media 
have almost exclusively focused on one type of cost--the $251 bn in 
cash that the government has spent on combat operations since the 
invasion of Iraq in March 2003. This is an important element of the 
financial cost but it is only the tip of a very deep iceberg.
    Currently the U.S. is spending about $6 bn per month on operations 
in Iraq. However, there are additional costs to the government--over 
and above this number. These include disability payments to veterans 
over the course of their lifetimes, the cost of replacing military 
equipment and munitions which are being consumed at a faster-than-
normal rate, the cost of medical treatment for returning Iraqi war 
veterans, particularly the more than 7,000 servicemen with brain, 
spinal, amputation and other serious injuries, and the cost of 
transporting returning troops back to their home bases. The Defense 
Department, for which expenditures not directly appropriated for Iraq 
have grown by more than 5% (CAGR) since the war began, has also spent a 
portion of this increase on support for the war in Iraq, including 
significantly higher recruitment costs, such as nearly doubling the 
number of recruiters, paying recruitment bonuses of up to $40,000 for 
new enlistees and paying special bonuses and other benefits, up to 
$150,000 for current troops that re-enlist. Another cost to the 
government is the interest on the money that it has borrowed to finance 
the war.
    Although it is difficult to estimate these costs precisely, we can 
use current and expected troop deployment to make a reasonable 
projection of the likely costs. Looking purely at direct budgetary 
costs to the taxpayer, we estimate that the total cost of the Iraq war 
is in the range of $750 billion to $1.2 trillion, assuming that the 
U.S. begins to withdraw troops in 2006 and maintains a diminishing 
presence in Iraq for the next 5 years. We have looked at the budgetary 
cost both including and excluding the cost of interest on the debt. We 
have also adjusted this cost for economic factors, as outlined in 
section two. Under any reasonable set of assumptions, the cost of the 
war even without considering the macroeconomic costs--is more than 
double the current number provided by the administration.
    We have estimated the budgetary costs using two scenarios. Both 
scenarios are based on the troop deployment projected by the 
Congressional Budget Office.\13\ Our ``Conservative'' scenario assumes 
that all troops will be withdrawn from Iraq by 2010, and that all 
interest on the debt borrowed to finance the war will be repaid within 
5 years. Under this scenario we count the long-term costs of disability 
pay and healthcare for veterans over a twenty-year period, even though 
most of the troops in Iraq are between ages 21-28 and are likely to 
live far longer. We have taken the present value of all cash flows at a 
4% discount rate. Even under this conservative scenario, the direct 
costs to the government are likely to exceed $700 bn. (See figure 1).
---------------------------------------------------------------------------
    \13\ U.S. Congressional Budget Office, Estimate of War Spending FY 
2005-FY2015, Feb 1, 2005.
---------------------------------------------------------------------------
    Under a second, ``Moderate'' scenario, we have used CBO's 
assumption that a small but continuous U.S. presence in Iraq continues 
through 2015. This has implications for the projected number of 
casualties and the length of involvement by the Defense Department. 
This scenario also assumes that the U.S. budget will remain in deficit 
for the next 20 years. This would raise the cost of the war to over 
$1.2 trillion. Both scenarios exclude the cost of operations in 
Afghanistan--estimated to be approximately $82 bn to date and consuming 
$1 bn per month.

             Figure 1: Budgetary Cost of the Iraq War ($BN)
------------------------------------------------------------------------
                                     Conservative           Moderate
------------------------------------------------------------------------
1  Spent to date                                 251                251
2  Future spending on                            200                271
 operations
3  VA costs                                       40                 57
4  Cost for Brain injuries                        14                 35
5  Veterans disability payments                   37                122
6  Demobilization costs                            6                  8
7  Increased defense spending                    104                139
8  Interest on debt                               98                386
       Total                                     750              1,269
------------------------------------------------------------------------


Assumptions for Figure 1 ``Total Cost of War in Iraq to the U.S. 
        Government''.

1. Spending to Date on Combat and Support Operations

    The total spending to date, as of December 30, 2005 is $251 
billion. This includes funds appropriated specifically for Iraq in 
Emergency supplemental appropriations in April 2002, November 2003, 
August 2004, April 2005, and the Continuing Resolution of September 
2005, which covers the first 6 weeks of FY 2006. This money includes 
funding for combat operations, basic troop deployments and logistics, 
deployment of National Guard and Reserves,\14\ food and supplies, 
training of Iraqi forces, weapons, munitions, supplementary combat pay, 
reconstruction,\15\ and payments to countries such as Jordan, Pakistan 
and Turkey. This also includes the payment of $500,000 in ``death 
gratuity payment'' and life insurance to the survivors of the 2,156 
fatalities in Iraq during this period. We have not included the costs 
to the Defense Department for planning the invasion in the months prior 
to the invasion, which the Congressional Research Service has estimated 
at $2.5 bn.\16\
---------------------------------------------------------------------------
    \14\ Approximately 40% of the U.S. troops serving in Iraq have been 
drawn from the National Guard and the Reserves, particularly the Army 
Reserves. Currently some 56,000 National Guardsmen and Reservists serve 
in Iraq. Additionally, over 60,000 people have been recruited to 
``backfill'' domestic positions in the Guard and Reserves that are 
vacant because the others are in Iraq. The direct additional cost of 
mobilizing these individuals is $3 billion per year. We have assumed 
that participation of the Guards and Reserves remains constant at 40%.
    \15\ Congress appropriated $18.4 bn--an unprecedented sum--for 
Iraqi reconstruction in September 2003. This funding was specified for 
purposes including school construction, sewerage, sanitation, repair of 
the electrical grid and other civilian projects. To date, most of the 
money spent has been diverted to military projects, including training 
bomb squads, training Iraqi security forces, constructing prisons, 
purchasing armored cars, and of the 3,600 projects completed, some 25% 
of funds were spent on security. Money has also been diverted to pay 
for the elections (source: Special Inspector General for Iraqi 
reconstruction). The Administration has recently announced that it will 
rescind its request for remaining reconstruction money.
    \16\ CRS, 10/7/05, Ibid.

---------------------------------------------------------------------------
2. Future Spending on Combat and Support Operations

    We have estimated the cost of future operations to be proportional 
to the number of troops scheduled to be deployed in Iraq from 2006-
2010. We have estimated the current number of troops stationed in Iraq 
as 160,000, using the number cited by the Pentagon. Future troop 
deployment figures are based on recent forecasts by the Congressional 
Budget Office, which predicts that troop levels in 2006 will be reduced 
to 136,000. The CBO has forecast troop levels through 2015, but in the 
conservative scenario we are assuming that all troops are out of Iraq 
by 2010. However, this approach almost certainly underestimates the 
actual cost of military operations, because the Pentagon will hire 
contractors to replace some portion of the activities performed by 
troops who are withdrawn.\17\ In our moderate scenario, we have assumed 
that the U.S. maintains a small troop presence until 2015, that we 
increase the number of contractors as troops decline, and that 
casualties continue, proportional to troop deployment. . . .
---------------------------------------------------------------------------
    \17\ Currently there are 20,000-25,000 private military contractors 
operating in Iraq, representing some 60 contracting firms. Experienced 
U.S. soldiers can earn up to several times their military salary 
working for high-end contractors, in some cases up to $1,000/day. (IPS, 
2004).

3. Additional Veterans Administration Medical Care Costs for Returning 
---------------------------------------------------------------------------
Veterans

    As of December 2005, over 16,000 military personnel have been 
wounded in Iraq since March 2003, of whom 96% were injured after the 
official combat operations ceased (since May 1st, 2003). Due to 
improvements in body armor that protect the core body, there has been 
an unusually high number of soldiers who have survived with major 
injuries, such as brain damage, spinal injuries, and amputations. 
According to the Pentagon and other sources,\18\ about 20% of those 
injured have suffered major head or spinal injury and an additional 6% 
are amputees. Another 21% suffered serious wounds that prevented them 
from returning to the military, including blindness, deafness, partial 
vision and hearing impairments, nerve damage and burns. In addition, 
more than half of the 550,000 U.S. troops who have served in Iraq have 
served two or three tours of continuous duty under stressful, grueling 
conditions. Some 20,000 soldiers have been prevented from leaving the 
service by the government's ``stop-loss'' policy, which requires troops 
to extend their tours in case of emergency. It is perhaps not 
surprising that the surgeon general of the Army reported, in July 2005, 
that 30% of U.S. troops have developed mental health problems within 3-
4 months of returning from Iraq. To date, more than one-third of 
returning veterans have used the VA system for health ailments.
---------------------------------------------------------------------------
    \18\ Wallsten and Kosec, AEI-Brookings Working Paper 05-19, 
September 2005, estimates 20% with serious brain injuries and 6% 
amputees. They estimate 24% with other serious injuries. (We use 21% 
with other serious injuries based on the latest Pentagon numbers.)
---------------------------------------------------------------------------
    The number we include here represents a conservative estimate of 
the additional costs to the Veterans Administration due to providing 
medical care and other benefits (such as rehabilitation, retraining, 
purchase, fitting and replacement of prosthetic devices, and 
counseling--but not including disability, housing, educational or loan 
payments) to returning Iraqi War veterans (other than those with brain 
injuries). The costs of treatment could be substantial. The VA had 
originally projected that 23,553 veterans returning from Iraq would 
seek medical care last year, but in June 2005, the VA revised this 
number to 103,000. The VA also is now responsible for providing care to 
an estimated 90,000 National Guards, who previously were not eligible 
for VA services. To meet these unforeseen demands, the VA appealed to 
Congress for an emergency $1.5 bn in funding for FY 2005. The VA is 
likely to face a shortfall of $2.6 billion in 2006.\19\ While not all 
the additional healthcare expenditures may in fact be directly linked 
to the Iraq war, it will be difficult not to provide the requested 
medical care. We assume that this need will continue and increase to $3 
bn as the veterans return home, and that the VA will require this 
additional level of funding added to its base budget.\20\ (We expect 
that this figure is significantly understated, considering that The 
Veterans Administration is already facing a shortfall in funding to 
meet its existing obligations.\21\)
---------------------------------------------------------------------------
    \19\ Institute for Policy Studies, 2005.
    \20\ See the discussion in the next section for an alternative 
methodology, which focuses on the direct costs of the Iraq injured.
    \21\ Former VA Secretary Anthony Principi said that the VA will 
need $600 bn over the next 30 years to meet its existing obligations 
for healthcare, education, pensions and housing loans--but this figure 
did not include the Iraqi war veterans. It also does not include 
additional funding for capital needs, including construction and 
repairs of VA facilities.
---------------------------------------------------------------------------
    The additional cost of providing benefits to Iraqi war veterans 
will become a major challenge for the VA. In our conservative scenario 
we have estimated that all troops are withdrawn by 2010 and these costs 
are for 20 years; in the moderate scenario we have assumed that troops 
continue to be deployed through 2015 and these costs continue 
throughout the lifetime of the veterans (40 years).

4. Medical Treatment for Brain Injuries

    There is a special category of healthcare expenditures that goes 
beyond those included in the above calculation--for those with brain 
injuries. To date, 3,213 people--20% of those injured in Iraq--have 
suffered head/brain injuries that require lifetime continual care at a 
cost range of $600,000 to $5 million.\22\ The government will be 
required to commit resources through intensive care facilities, round-
the-clock home or institutional care, rehabilitation and assisted 
living for these veterans.
---------------------------------------------------------------------------
    \22\ Wallsten and Kosec, AEI, The Economic Cost of the War, 2005 
and Department of Defense estimates for number of wounded.
---------------------------------------------------------------------------
    For the conservative estimate, we have used a midpoint estimate of 
a net present value of $2.7 million over a 20 year expected survival 
rate for this group, which is about $135,000 per year, yielding a cost 
of $14 billion. This amount seems low for brain-injured individuals who 
will require round-the-clock care in feeding, dressing and daily 
functioning. For the moderate estimate, we use a higher cost estimate 
($4m) and assume longer life duration for a total cost of $35 billion. 
In both cases we assume that the number injured will rise in a manner 
consistent with the duration of the conflict.

5. Disability Pay for Veterans

    Veterans of the Iraq war are eligible to claim disability pay and 
benefits, ranging up to a maximum of about $44,000 per year, under a 
complex formula administered by the Veterans Administration. It is 
important to note that that Congressional intent for disability 
payments is to ``compensate for a reduction in quality of life due to 
service-connected disability payment of this disability''. The benefit 
is intended to ``provide compensation for average impairment in 
earnings capacity''--but it does not require the veteran to actively 
seek employment nor is it offset against post-military civilian 
earning. The principle dates back to the Bible at Exodus 21:25, which 
authorizes financial compensation for pain inflicted by another.\23\
---------------------------------------------------------------------------
    \23\ VA Disability Compensation Program, Legislative History, VA 
Office of Policy, Planning and Preparedness, December 2004
---------------------------------------------------------------------------
    Veterans are awarded claims based on the percentage of disability 
they can demonstrate; in gradations (0-100%) though it is possible to 
have a 0% disability percentage across multiple conditions and still 
qualify a veteran for some disability pay. The presumption for 
disability compensation is tied to symptoms that appear within a period 
of time after service. There are numerous programs that provide 
benefits depending on the situation, including disability compensation, 
specially adapted housing grants, medical benefits with higher 
priorities, vocational rehabilitation, service-disabled veterans life 
insurance, dependency and indemnity compensation (paid to surviving 
spouse and children if a veteran dies of an illness or injury 
contracted while on active duty, or dies of such after retirement).\24\
---------------------------------------------------------------------------
    \24\ This principle is cited in numerous legal cases in which 
juries award compensation for injury.
---------------------------------------------------------------------------
    We have estimated the amount of claims that the government will 
need to pay based on a projection of the rate of claims based on the 
Persian Gulf War. The government currently pays $2 billion annually in 
support of 169,000 claims, or an average of $11,834 per claimant. 
(Hartung, 2004) The total number of claims for that war exceeded 
200,000, or more than one-third of the troops deployed, despite the 
fact that the war lasted 4 weeks with 148 dead and 467 wounded. Many of 
those claims were related to the exposure to depleted uranium during 
the Persian Gulf conflict, and included ailments such as memory loss, 
sleep problems, Lou Gehrig's disease, poor concentration, and joint 
problems. Congress has established a ``presumption of service-
connection'' for any health problems linked to ``exposure to possible 
nerve agents and other toxins present in the Persian Gulf conflict and 
vaccinations against biological war hazards in preparation for the 
Persian Gulf.'' \25\
---------------------------------------------------------------------------
    \25\ In 1994 Congress passed the Gulf War Veterans Benefit Act, 
which legislated a presumption of service connection for an undiagnosed 
illness that occurred within an unprescribed time frame, taking into 
account the Gulf War Syndrome. This time frame period was extended in 
2001 to include any disabilities associated with the Persian Gulf War 
service that may appear through Dec. 31, 2011. (VA Disability 
Compensation Program, Ibid).
---------------------------------------------------------------------------
    In the Iraq conflict, more depleted uranium was used in the bombing 
of Baghdad than in the Persian Gulf conflict; \26\ therefore the Iraq 
war veterans will be easily eligible for disability claims for any 
health problems that they can link to exposure. As we noted earlier, 
more than one-third of returning veterans have used the VA system for 
health ailments. We have estimated that those with serious injuries 
would receive the maximum disability benefits from the VA, those with 
medium-serious injuries would receive half those benefits ($22,000), 
and one-third of the remaining forces would receive the average benefit 
awarded to the Gulf War veterans, or $11,834. This sums to an annual 
payment of $2.3 billion. In the conservative scenario we have estimated 
this payment over 20 years; in the moderate scenario we have assumed 
that these payments continue over the lifetime of the veteran, so until 
2045.
---------------------------------------------------------------------------
    \26\ William Hartung, ``The Cost of War'' 2004, Taxpayers for 
Common Sense.

---------------------------------------------------------------------------
6. Cost of Demobilization

    The Pentagon has announced plans to reduce troop levels from their 
current force of over 160,000 to around 140,000 in the next year, and 
we have assumed that this withdrawal will continue gradually as 
outlined by the CBO. This will in itself require direct payments of $6-
10 bn for the transportation and demobilization of troops, returning 
them to their home bases, or civilian roles (in the case of Reserves).

7. Increased Defense Spending

    Since 2002, the total appropriations for the Defense Department 
have increased from $310 bn to $420 bn, representing a total cumulative 
increase of $325 bn. Portions of the FY 2002, 2003, 2004 and 2005 
appropriations bills, as well as FY 2003 and FY 2004 transfers, have 
been appropriated for Iraq. In total we estimate that 30% of the $325 
increase has been devoted to Iraq. This figure covers increased 
military pay, research and development, recruitment, operations and 
maintenance and replacement of equipment. According to Pentagon 
estimates, the military is wearing out equipment at a rate that is 4-5 
times the rate of usage in non-combat situations.\27\ Additionally, CBO 
has estimated that the military will require some $100 bn in 
replacements over the next five to 10 years. (Much of this funding has 
not yet been requested) \28\ and GAO has referred to the shortfall in 
funding for repairs, replacements and procurements \29\ and the 
confusion between determining emergency supplemental and ordinary 
funding needs.. . .
---------------------------------------------------------------------------
    \27\ Secretary Donald Rumsfeld said at a briefing on March 10, 2005 
that U.S. military equipment such as tanks, Bradley fighting vehicles 
and helicopters are being worn out at up to 6 times the peacetime rate. 
(Washington Post, 3/11/05)
    \28\ Scott Lilly, staff director of the House Appropriations 
Committee, said the Army would need more than $17.5 bn to replace or 
repair worn or damaged equipment in the first year of the war. But the 
Army's request for depot maintenance and procurement was only about 
$2.2 bn in the supplemental. ``Pentagon's Request for Iraq includes 
money for troops and rewards'', New York Times, 10/03/03. Additionally, 
Rep. Duncan Hunter, Chairman of the House Appropriations Committee, has 
cited figures that the Defense Department needs $90 bn per year in 
annual modernizations and at present levels, is still $30 bn short, 
based on CBO estimates. (Wall Street Journal, 5/03)
    \29\ The GAO has also referred to the shortfall in funding requests 
for military replacements. (GAO, ``Global War on Terrorism: DOD Should 
Consider All Funds Requested for the War When Determining Needs and 
Covering Expenses.''
---------------------------------------------------------------------------
    In our estimates, we have attributed one-third of the increase in 
Defense spending to Iraq, minus the savings from no longer policing the 
no-fly zone to the Pentagon. Savings from the no-fly zone have been 
estimated to be from $11 to $15 bn per year.\30\ Given that the 
Department is highly focused on the outcome of the war in Iraq, we 
estimate that up to one-half of the increase in the defense spending 
may be related to Iraq, but we have used only 30% of the spending in 
our conservative and moderate scenarios.
---------------------------------------------------------------------------
    \30\ Wallsten and Kosec estimate savings from the no-fly zone at 
$32 bn in the nearly 3 years since March 2003. John Amidon of the Air 
War College estimates the cost of policing the no-fly zone at $15 bn 
per year.
---------------------------------------------------------------------------
    In addition, this increase reflects the military's increasing 
difficulty in recruiting troops and officers at all levels since the 
beginning of the Iraq conflict. During 2005, the Army was below target 
for most of the year, and actually lowered its targets in order to 
achieve them.\31\ There were shortfalls in the Army National Guard, 
Army Reserves, and Marine Reserves. Applications to West Point and the 
U.S. Naval Academy also fell between 10-25% from previous years. The 
military has responded to this challenge by hiring thousands of 
additional recruiters, increasing its national advertising campaigns, 
offering sign-up bonuses of up to $40,000 for new recruits, offering 
higher retirement and disability benefits, increasing the ``death 
gratuity'' to $100,000, and providing re-enlistment bonuses of up to 
$150,000 for experienced troops (who might otherwise leave the military 
to join private contractors who would pay even higher amounts). In 
further efforts to boost recruitment, the Pentagon increased the 
maximum enlistment age from 35 to 42 and relaxed standards for 
appearance and behavior, making it more difficult to be fired. The cost 
to the military per recruit has increased from $14,500 in 2003 to 
$17,500 in 2005. (Pentagon). Hardship pay has been increased from $300 
to $750 per month. We assume that the military will need to make these 
changes permanent, adding at least $1 bn-$2 bn per year into the 
permanent budget base. Additional increases include military pay 
raises, and the purchase of more expensive body armor for combat.
---------------------------------------------------------------------------
    \31\ For example, the May recruiting target was originally 8050, 
but was lowered to 6706. Similar adjustments were made throughout the 
year.

---------------------------------------------------------------------------
8. Interest Payments on Debt

    Given that at the onset of the War, the country was already running 
a deficit, and no new taxes have been levied, it is not unreasonable to 
assume, for purposes of budgeting,\32\ that all of the funding for the 
war to date has been borrowed, adding to the already existing Federal 
budget deficit. In the conservative scenario we assume that these funds 
are borrowed at 4% and repaid in full within five years. The moderate 
scenario assumes that the country continues to have a deficit over the 
next 20 years and therefore interest continues to accrue.
---------------------------------------------------------------------------
    \32\ An economic analysis is somewhat more complicated, as the 
discussion in section IV will make clear.
---------------------------------------------------------------------------
II. Costs of the War to the U.S. Economy: Adjustments to the Budgetary 
        Estimates
    A second way to measure the cost of the war is to examine its 
economic cost. Economic costs differ from budgetary costs in three 
ways: (a) costs are borne by others (than the Federal government and 
those fighting in the war), and these are obviously excluded from the 
budgetary costs to the Federal government; (b) the prices paid by the 
government do not reflect full market value; and (c) economic costs do 
not include interest payments (which can be viewed just as transfer 
payments), but do include long run impacts on the growth of the 
economy. For instance, in the days of the draft, pay provided soldiers 
were a vast underestimate of their opportunity costs. Healthcare costs 
borne by soldiers and their families are examples of costs borne by 
others.
    Here, we focus on the loss of productive capacity of the young 
Americans who have been killed or seriously wounded in Iraq, and the 
loss of civilian wages that would have been earned by those called back 
to duty in the Reserve forces.
    There are some ``problematic'' items within the budgetary costs, 
most notably expenditures on veterans not linked with the Iraq war. The 
best way to think of this is as part of deferred compensation, and 
therefore, while the ``categorization''--repairing human damage as a 
result of the war--is incorrect, it is still part of the cost of the 
war.
    Once again we have estimated the costs under two scenarios. In the 
conservative case, the adjustments add $187 bn onto the budgetary 
cost--raising the cost to $839 bn, even when subtracting the entire 
cost of interest payments. In the moderate case, the economic 
adjustments increase costs by $305 bn. Even if we deduct the cost of 
interest, the cost of the war under this scenario exceeds $1 trillion. 
But these calculations ignore the fact that some of the resources 
deployed in the war could have been used to promote economic growth, 
and that there are a broad range of macro-economic costs, the effect of 
which, as we shall show in the next section, is to increase the 
economic costs of the war by a significant amount.

Figure 2: Adjustments to Budgetary Numbers to Account for Economic Costs
                                  ($BN)
------------------------------------------------------------------------
                                     Conservative           Moderate
------------------------------------------------------------------------
1  Spent to Date                                   3                  8
2  Economic Cost of Reserves                       3                  9
3  Economic Cost of Fatalities                    23                 29
4  Loss due to Brain Injuries                     34                 48
5  Loss due to Other Serious                      30                 64
 Injuries
6  Loss due to Other Injuries                     18                 26
7  Less veterans disability                     (12)               (28)
 payments
8  Increased depreciation of                      89                149
 military hardware
Net Adjustment                                   187                305
------------------------------------------------------------------------

    The cost of the war to the United States, before taking 
macroeconomic factors into account, can therefore be estimated under a 
variety of assumptions to fall between $700 bn and $1 trillion dollars, 
as shown in Figure 3.

                  Figure 3: Projected Cost of the Iraq War ($US bn) without macroeconomic costs
----------------------------------------------------------------------------------------------------------------
                                                   Budgetary cost     Budgetary Cost (inc.   Cost with Economic
                    Scenario                     (without interest)         interest)         Adjustments \33\
----------------------------------------------------------------------------------------------------------------
Conservative                                                    652                   750                   839
----------------------------------------------------------------------------------------------------------------
Moderate                                                        884                  1269                  1189
----------------------------------------------------------------------------------------------------------------


Differences between assumptions for economic and budgetary models.

1. Economic Cost of Reserves

    \33\ Budgetary cost without interest+economic adjustments.
---------------------------------------------------------------------------
    As we noted earlier, the U.S. force in Iraq is composed of 40% the 
National Guard and Reserve forces. Many of these men and women normally 
work in critical ``first responder'' jobs in their local communities, 
such as firemen, policemen and emergency medical personnel. More than 
210,000 of the National Guard's 330,000 soldiers have served in Iraq or 
Afghanistan, and the average length of Guard mobilization is 480 
days.\34\ It is difficult to measure the cost of this deployment in 
purely economic terms because there is a large unquantifiable cost in 
terms of the loss of these ``first responders'' to emergencies, 
including the value of the ``insurance'' of having these people ready 
to respond to emergencies. This was clearly seen in the Hurricane 
Katrina debacle, where 3000 Louisiana National Guardsmen and 4000 
Mississippi Guardsmen were stationed in Iraq when the hurricane hit. 
According to the Institute for Policy Studies, some 44% of U.S. police 
forces have some of their ranks deployed in Iraq. The loss of these 
services in Katrina and elsewhere clearly has had large budgetary and 
economic costs. We do not directly measure either the economic costs of 
the loss of ``insurance'' or the economic and budgetary costs arising 
from reduction in first responder capabilities (which may have been 
considerable.)
---------------------------------------------------------------------------
    \34\ IPS, Ibid.
---------------------------------------------------------------------------
    Still, there are some quantifiable economic costs that go beyond 
those noted earlier in our budgetary analysis. In the budgetary model, 
we included (as part of operating costs) the additional cost to the 
government of hiring replacements for those sent to Iraq, which is 
around $3 bn per year. In this model, we have subtracted that sum from 
the total cost of operations but added in the economic cost of the 
difference between the civilian wages that these individuals would earn 
in their regular occupations and the lower wages they typically earn in 
the Reserves. Scott Wallsten and Katrina Kosec (AEI/Brookings, 2005) 
have calculated that Reserve soldiers earn about $33,000 per year as 
civilians. They estimate that the opportunity cost of using Reserve 
troops at current levels is $3.9 billion to date. We have adopted that 
figure into our conservative assumptions. In our moderate model, we 
have increased the pay per Reservist slightly to $46,000, taking into 
account the fully loaded cost of benefits, particularly for those 
reservists who are in police and fire departments and receiving 60-100% 
benefits.\35\
---------------------------------------------------------------------------
    \35\ It is apparent (evidenced by increased difficulties in 
recruiting) that individuals did not fully appreciate the risks they 
faced when joining the reserves, so that the wage received does not 
reflect adequate compensation for those risks. This is particularly 
true because of the stop-loss policy which requires troops to extend 
their tours, with some 20,000 having in fact been prevented from 
leaving their service at their scheduled dates. A full adjustment of 
the economic costs would include appropriate compensation for the risks 
taken. See below.

---------------------------------------------------------------------------
2. Economic Cost of Military Fatalities

    The budgetary model only incorporates the payments made to 
individuals as a result of death. Had these individuals been killed in 
a car accident or a work related accident (other than military) there 
would have been much larger payments, reflecting the economic costs of 
the losses.
    Although it is impossible to translate the value of a life into 
purely monetary terms, the government commonly uses this approach and 
determines the ``Value of statistical life'' or ``VSL'', based to some 
extent on the value of foregone earnings and contributions to the 
economy. This method is also widely used by insurance companies and 
other private sector concerns. In this study, we have estimated the VSL 
of each U.S. military and contractor fatality as of December 2005. 
According to the Pentagon casualty reports, this is 2156 military 
fatalities and approximately 100 contractors.\36\ We have projected 
these forward according to the two different scenarios described 
earlier.
---------------------------------------------------------------------------
    \36\ In the case of the contractors, one might argue that their 
wages (already included in the analysis) includes compensation for the 
risk of the loss of life, so that the value of the loss of these 100 
contractor lives should be subtracted (reducing the overall cost of the 
War by some $600 million.)
---------------------------------------------------------------------------
    We have not taken into account the number of Iraqis who have been 
killed in the conflict, estimates of which range from 30,000 (the 
number estimated by President Bush in December 2005), to a 100,000 
estimated by the British Lancet. We have also not counted the several 
hundred casualties among coalition countries, of which about 100 were 
British soldiers.
    There are a wide range of VSL values in use. In our conservative 
scenario, we have adopted the standard set by the U.S. Environmental 
Protection Agency, $6.1 million per life. However this is only an 
approximation. The value of a young life may be determined to be higher 
than average, based on an estimate of foregone earnings (Viscusi and 
Aldy, 2005\37\.) Juries frequently award much higher amounts in 
wrongful death lawsuits, and some have reached as high as $269 
million.\38\ We have used the number $6.5 million in our moderate 
scenario. In projecting the number of fatalities and casualties 
forward, we have assumed that these would be proportional to the number 
of troops deployed in Iraq, based on the average number of casualties 
per month to date. However, even this is a conservative estimate, since 
the number of casualties has been increasing.
---------------------------------------------------------------------------
    \37\ The ``peak'' age for VSL may be 29, in terms of lost earnings 
potential, with a VSL between $5.9 and $7.5 (Viscusi, and Aldy, NBER 
Working Paper 10199, 2003)
    \38\ There have been hundreds of large jury awards (ranging from $2 
m-$269 m) in wrongful death suits over the past 5 years. These include 
the awards of $112 to Elizabeth and John Reden of New York for a 
malpractice case in which their daughter suffered brain damage (2004) 
and $43 in Louisiana in 2001 for Seth Becker, a 24-year old who needed 
both legs amputated after an injury he sustained while working for 
Baker Oil Tools. In both of these and many other cases the amount 
awarded was determined primarily on the basis of the cost of round-the-
clock medical care for life that the injured person would require. The 
$269 m award was for Rachel Martin, a 15-year old Texas girl who died 
in 1998. In most cases the plaintiffs receive less than the total 
award, typically about 10%.

---------------------------------------------------------------------------
3. Economic Cost of Contractor Fatalities

    There have been about 100 U.S. contractors killed in Iraq since 
March 2003 (as well as some non-U.S. contractors, mostly working for 
western companies.) In this model we have only included the U.S. 
contractors, and extrapolated the numbers according to the two 
different war scenarios. We have used the VSL of 6.1 million and 6.5 
million, respectively, for the conservative and moderate models. 
However it should be noted that in many cases, the contractors were 
highly skilled, highly paid specialists, working on reconstruction 
projects such as fixing the electricity grid and oil facilities. We 
have not counted their true loss to the success of the project in Iraq, 
or the fact that their high casualty rate has made it more difficult 
and more expensive for western contractors to higher replacements to 
perform these jobs.
4. Economic Cost of the Seriously Injured \39\
---------------------------------------------------------------------------
    \39\ One might argue that for those joining the army and reserves 
after the beginning of the War, the increased compensation already 
incorporates the (present discounted value of) loss in welfare from the 
increased injuries (deaths), and so including both item 10 from table 1 
and items 2 and 4 from table 2 represents ``double counting.'' 
Therefore, it may be argued, we should subtract $5.3 (conservative; 
$8.76 in moderate case) from the total. However, there is no reason to 
believe that those enlisting have a good sense of the actual risks 
(there is no evidence that the armed forces provides accurate 
information to the enlistees) and the increased compensation reflects 
no just increased probability of injury and death, but also the stop 
loss provisions which did not allow individuals to leave the services 
at the scheduled time. In any case, the basic pattern of results is 
unaltered.

    Earlier, we described the budgetary costs of healthcare and 
disability for the seriously injured. The wounded contribute 
significantly to the cost of the war--both in a budgetary sense (in the 
form of lifetime disability payments, housing assistance, living 
assistance and other benefits from the Veterans Administration), and in 
an economic sense. The budgetary expenditures discussed earlier 
underestimate the true economic costs for three reasons: (a) They do 
not include adequate compensation for ``pain and suffering,'' of the 
kind that would have been provided, for instance, had those suffering 
injuries been hurt in an automobile accident; (b) they do not include 
additional healthcare expenditures by the parties themselves, their 
families, or other government agencies; and (c) perhaps most 
importantly, they do not include the loss of economic services. On the 
other hand, they do include healthcare expenditures that may not be 
directly a consequence of the war. However, as we noted earlier, we are 
treating this as part of the deferred compensation, and therefore it is 
both a budgetary and an economic cost.
    In their recent study of the economic costs of the war, Wallsten 
and Kosec used a ``value of statistical injury'' to estimate the cost 
of the wounded. This value represents what people are willing to pay in 
order to avoid being injured. They applied this value to the number of 
injured personnel, according to the severity of their injuries and the 
average cost of treatment over its lifetime. They calculated total net 
present value of injuries at $18.2 bn to date, and $48 bn through 2015, 
using a 5% discount rate.\40\
---------------------------------------------------------------------------
    \40\ This is based on their ``midpoint'' scenario. Their high 
estimate is $74 bn.
---------------------------------------------------------------------------
    The Wallsten and Kosec study is quite thorough and we have used 
their estimates of the number and type of wounds, and lifetime 
treatment costs. However, they probably underestimated the total cost 
of the wounded because they only assigned an amount to the 26% with 
brain injuries and/or amputations. We have included additionally the 
cost of the 21% of personnel (5545 people, as of December 2005) with 
other serious wounds. Such injuries would include wounds from shells, 
explosions, gunfire, mortar, landmines, grenades, firearms and 
infections, resulting in conditions such as blindness, partial 
blindness, deafness, partial deafness, cardiac injury, facial 
deformation, burns, multiple broken bones, nerve damage and mental 
breakdown. We have deducted the veterans' disability payments from all 
these individuals.
    We have estimated that personnel with serious injuries (including 
brain injuries) receiving full disability payments will essentially be 
lost to the economy and therefore we should assign them a VSL similar 
to the deceased, of $6.1 m. In the Conservative case, we have estimated 
that those who were wounded during the conflict, but returned to the 
military will suffer some impairment beyond the small amount of 
disability pay they may receive. We have very conservatively estimated 
that 20% of the total VSL would be an approximation of this impairment. 
Taken together, this adds approximately $70 bn.
    Under our moderate scenario, we have used a similar formula, but 
using an estimate of $6.5 m for the VSL and assuming that there are 
more casualties, due to the longer duration of the conflict. Less 
disability payments this adds another approximately $110 bn.
    There is another significant cost that we have not included, simply 
because we did not have the data to prepare a robust estimate. This is 
the degree of impairment that will be suffered by the other veterans--
numbering some 160,000, or approximately one-third of the 550,000 
veterans from the Iraq war--who will be eligible to claim some 
disability benefits. We believe that a significant number of these 
individuals will suffer substantial mental and physical ailments that 
will significantly reduce their earning potential and quality of life. 
If even 15% of these veterans fall into this category, this alone would 
add another $30-35 bn to the economic cost of the war.\41\
---------------------------------------------------------------------------
    \41\ Assuming 20% of the VSL for 24,000 individuals.
---------------------------------------------------------------------------
    A conservative estimate of the risk premium individuals would 
require to be compensated for the injuries (beyond the loss of economic 
functionality and healthcare costs) could (with reasonable estimates of 
risk premia) double the total.\42\ We have, however, omitted those 
numbers from the analysis.
---------------------------------------------------------------------------
    \42\ Individuals are willing to pay insurance premia that are 
typically 60% to 120% of the value of the loss. In the case of the loss 
of limbs and other major bodily injuries, the risk premia are likely to 
be considerably higher.

---------------------------------------------------------------------------
5. Accelerated Depreciation of Military Hardware

    There is only a slight difference in the estimate of the budgetary 
and economic costs associated with military hardware. The budgetary 
costs focus on replacement expenditures, the economic costs on the more 
rapid depreciation of hardware (than otherwise would have been the 
case.) In our conservative scenario, we have simply estimated straight-
line 5-year depreciation for the $100 m in military replacements 
estimated by the House Armed Services Committee and CBO, over the next 
5 years. This is in line with the DOD's assessment that equipment is 
being used up at 5 times the normal rate of utilization in peacetime. 
We are assuming that the Pentagon will incur at least an additional $25 
bn in replacements through 2015, in the moderate scenario.
III. The Macro-economic Effects of the War in Iraq
    As large as the direct costs--current and future--are, the macro-
economic consequences may even be several times larger.\43\ There are 
at least three major sources of macro-economic consequences: (a) the 
increase in the price of oil; (b) the increase in defense expenditures; 
and (c) the increased insecurity that has followed from the way that 
the war has been pursued.
---------------------------------------------------------------------------
    \43\ We provide here preliminary estimates of the costs so far, and 
what those costs might be expected to be under various scenarios. We do 
not provide what would have been a reasonable estimate of the costs at 
the time that the United States went to war. Given the administration's 
attempt to minimize the expected costs, it is not surprising that they 
did not take into account all of the costs discussed in this section.
---------------------------------------------------------------------------
    In ascertaining the magnitude of these macro-economic effects, 
there is a standard problem: the counterfactual, what would the world 
have looked like, but for the war in Iraq.
Security
    Consider the issue of security. The bombings in Madrid and London 
have only exacerbated a growing sense of insecurity. Would matters have 
been even worse had there been no war? One of the stated objectives of 
the war was to enhance the sense of security (to make sure that the war 
on terrorism was fought there, not here.) It is conceivable that the 
Middle East would have been even more unstable than it is today. But 
especially on the basis of what we know today--Iraq did not have 
weapons of mass destruction, and it did not have the capacities to 
develop them quickly--this seems unlikely, Contrary to the assertions 
before the War by the administration, Iraq (with its highly secular 
regime) was not working with Al Qaeda, and was not a training ground 
for insurgency. Unfortunately, the disorder that has followed the war 
has provided a place where such training is going on today.
    The costs of this insecurity are potentially huge.

        a.  Individuals are risk averse, and there is thus a direct 
        quantifiable cost associated with the increase in risk.
        b.  The response to security threats has been to create 
        significant barriers to the free flow of people, goods, and 
        services. The Administration champions the virtues of free 
        trade and the benefits from lowering trade barriers, even when 
        those barriers are already low. But increased border security 
        (including airport security, the reporting and registration 
        requirements of the bioterrorism act, and so forth) are trade 
        barriers; not only are there direct costs associated with 
        administering these security measures, there can be significant 
        macro-economic effects of the reduced flow of goods and 
        services. A special category of costs is associated with the 
        significantly reduced flow of students to the U.S., especially 
        in areas of science and technology, where we have become very 
        dependent on these ``imports.'' (Many have stayed and made 
        large contributions to the economy.)
        c.  Increased risk is bad for business; it lowers investment, 
        and over the long run thus has supply side as well as demand 
        side effects.

    Calculating these costs--and particular, the incremental costs 
associated with the Iraq War (beyond the costs which would otherwise be 
associated with the War on Terrorism)--is sufficiently difficult and 
problematic that we do not provide any estimates here. But it means 
that the numbers reported below almost surely underestimate the total 
macro-economic effects.
Oil
    The price of oil is significantly higher today than it was before 
the War in Iraq. Even as the country went to war, it was recognized 
that it might have effects on the global oil market. Some of the 
remarks of those in the administration seem to suggest that it may have 
even been a factor driving the country to war. Larry Lindsey is 
reported to have said, ``the best way to keep oil prices in check is a 
short, successful war on Iraq . . .'' \44\
---------------------------------------------------------------------------
    \44\ Wall Street Journal, September 15, 2002.
---------------------------------------------------------------------------
    The higher price of oil brings costs and benefits. Profits of the 
oil companies have increased enormously.\45\ It is the one group 
(besides certain defense contractors) that has clearly benefited from 
the war. (Though popular discussions of the still not-clear motives for 
going to war often focused on oil, there is so far no reason to suppose 
that these benefits to one of the President's ``constituencies'' played 
an important motivation.) Here, we are concerned with the costs to the 
overall economy of these high oil prices.
---------------------------------------------------------------------------
    \45\ In 2005, four of the ten most profitable corporations in the 
world are oil and gas companies--Exxon-Mobil, Shell, BP and Chevron 
Texaco. In 2002, only one of the top 10 most profitable corporations 
was from the oil and gas industry. Source: The Forbes Global 2000, 
http://www.forbes.com/2005/03/30/05f2000land.html, http://
www.forbes.com/2002/03/27/forbes500.html.
---------------------------------------------------------------------------
    First, however, we have to ascertain to what extent has the 
increased price (from $25 a barrel before the War to around $50 today--
ignoring the spike associated with Katrina when prices rose to $60) 
been a result of the war itself.\46\ Again, the question is, what is 
the counterfactual? What would the price have been had there been no 
war? To what extent is the rise in price due to the war, and to what 
extent is it due to other factors?
---------------------------------------------------------------------------
    \46\ Oil price averaged $23.71/barrel during 2002. In run up to the 
war, price rose to $32.23 by February 2003 (war began on March 20, 
2003). One has to interpret a significant part of the run up of costs 
prior to the war to the war itself--an increase in stockpiling in 
response to worries about supply interruptions. The price averaged 
$27.71 in 2003, $35.90 in 2004 and rose to $49.28 by June 2005. After 
Katrina, prices have stayed relatively high. As we argue, part of the 
cost of the War is the reduction in the capability of responding 
quickly to these supply shocks.
---------------------------------------------------------------------------
    Future markets provide some insight. Before the war, they were 
forecasting that oil prices remain in the range that they had been, $20 
to $30.  Futures markets take into account growth in demands in China 
and elsewhere as well as changes in supply. They do so on the basis of 
``business as usual,'' that is, on the basis that nothing out of the 
ordinary happens. The war in Iraq was the most notable event, and it is 
hard to identify any other which can be given as much credit for 
significant change in demand or supply (apart from Katrina). Some might 
blame the high demand for oil from China. But China has had two decades 
of robust growth, and its growth in 2004 was stronger than many market 
analysts had anticipated earlier; but global growth in 2005 (of around 
4%) is clearly not particularly unusual. Markets are supposed to 
anticipate and respond to changes in demand by increasing supply. 
Errors in one year are quickly corrected in the next.
    What is striking is that present prices are significantly higher 
than what most analysts believe is the long run price, and futures 
markets expect that such prices will persist for at least another 2 
years.\47\ That is, costs of extraction in Iraq (apart from the 
security concerns), Saudi Arabia, and elsewhere in the Middle East are 
much lower than $40, and at $40 there are many alternative sources 
(shale, tar sands) with a large supply elasticity. The question is, why 
has there not been this normal supply response. We suggest that the War 
in Iraq provides the critical explanation.
---------------------------------------------------------------------------
    \47\ Futures market predicts the price to remain mid $60 range 
during 2006 and 2007 and then fall in 2008.
---------------------------------------------------------------------------
    Had there been no war, and had price increased, the international 
community could have allowed Iraq to expand production, and this would 
have brought down the price. But it is more likely that production 
elsewhere, including and especially elsewhere in the Middle East, would 
have increased. The instability in the Middle East which has been 
brought about by the Iraq War has increased the risk of investing in 
that region; but because costs of extraction are so much lower than 
elsewhere, it has not provided a commensurate supply response 
elsewhere. If stability is restored, then prices will fall, and these 
investments elsewhere would turn a loss.\48\
---------------------------------------------------------------------------
    \48\ The increase in the price immediately after the war can be 
partially directly attributed to Iraq, as what it had been supplying to 
the world markets under the oil-for-food program was greatly diminished 
(by almost 1 mbd). Oil prices had, of course, increased even before the 
war, in anticipation of these effects, so that the costs of the war 
began even before the war itself.
---------------------------------------------------------------------------
    In addition, there is the fact that oil production in Iraq has 
plummeted since the war. Even though Iraq is not an oil producer on the 
scale of Saudi Arabia and Russia, Iraq did produce around 2.6m barrels 
per day (a similar level to Kuwait, Nigeria and the UK) on the eve of 
the war. Now production has dropped to 1.1 million barrels per day. The 
insurgency has sabotaged refining capacity and truck drivers have 
refused to transport oil from the north, due to the threat of 
insurgents.\49\
---------------------------------------------------------------------------
    \49\ Iraqi Oil production statistics from Pearson Education. Iraq 
produced 3.5 million barrels per day in 1990, prior to the Gulf War, 
and is said to have one of the world's greatest oil reserves.
---------------------------------------------------------------------------
    Though we believe, accordingly, that the best estimate of the cost 
of Iraq on oil prices is a very large proportion of the $25 a barrel or 
more increase in the price of oil (and looking forward, we can 
extrapolate this cost for the next two years), we provide a 
conservative calculation based on the assumption that only 20% of that 
amount--$5--is due to Iraq. In our moderate estimate, we assume $10 is 
due to Iraq.

                                         Figure 4: Impact of Oil Prices
----------------------------------------------------------------------------------------------------------------
                                                                                  Refiner
                                         Total Crude Oil   Total Import Per   Acquisition Cost    Total Cost of
                  Year                   Import (Thousand    Year (Billion     of Crude Oil,       Oil Import
                                         Barrels Per Day)      Barrels)         Imported ($/      (Billion US$)
                                                                                  Barrel)
----------------------------------------------------------------------------------------------------------------
2000                                             11459.3              4.19               27.7             116.2
----------------------------------------------------------------------------------------------------------------
2001                                             11871.3              4.34               22.0              95.3
----------------------------------------------------------------------------------------------------------------
2002                                             11530.2              4.22               23.7              99.8
----------------------------------------------------------------------------------------------------------------
2003                                             12264.4              4.49               27.7             124.0
----------------------------------------------------------------------------------------------------------------
2004                                             13145.1              4.81               35.9             172.7
----------------------------------------------------------------------------------------------------------------
2005*                                            13415.5              4.91               47.9             234.7
----------------------------------------------------------------------------------------------------------------
2006**                                           13952.1              5.11               57.4             292.3
----------------------------------------------------------------------------------------------------------------
2007**                                           14510.2              5.31               65.0             344.3
----------------------------------------------------------------------------------------------------------------
* Average for the first 9 months of 2005. The total import cost is for the 12-month period using the 9-month
  average.
** Assuming 4% growth in 2006 and 2007. \50\

    Given U.S. imports of roughly 4.75 to 5.0 billion barrels a year, a 
$5 per barrel increase translates into an extra expenditure of 
approximately $25 billion ($10 would be $50 billion). Americans are, in 
a sense, poorer by that amount.
---------------------------------------------------------------------------
    \50\ Data compiled from Energy Information Administration, 
Department of Energy, U.S. Government, http://www.eia.doe.gov/emeu/
international/petroleu.html#IntlProduction
---------------------------------------------------------------------------
    In a neoclassical model that assumes full employment of all 
resources, this would be the principle effect on national income. If 
the economy continues to use all of its resources fully, gross output 
remains unchanged; only what is paid for inputs of oil has increased, 
so that value added (GDP) is reduced commensurately.\51\
---------------------------------------------------------------------------
    \51\ That is, simplifying, if we write GDP = vL + p, where p is 
profits, v is real wages, and L is employment, then GDP/p 
= M + vL/p, where p is the price of oil and M is imports. 
The last term is the effect of the price of oil on the amount of labor 
individuals wish to supply, which we assume is negligible. Note that 
when there is a large change in price, the effect is measured by DpM*, 
where M* is some number between the level of the actual imports and 
what the imports would have been, had the price of oil not increased. 
Given the low short run elasticity of the demand for oil, the 
difference may be small.
---------------------------------------------------------------------------
    Assuming that a $5 price increase persists for 5 years, this 
generates a conservative estimate of $125 billion. For our moderate 
estimate, we use a $10 price increase, but more plausibly, assume it 
extends (as future markets believe) for at least 6 years. That 
generates a cost of $300 billion.
    This supply side approach assumes that if the price increase is 
reversed, the damage is over. To put it another way, this simple model 
implies that if first the price goes up by $10 for 1 year, and then 
down by $10 by 1 year (from its baseline), and then is restored to its 
previous level, there is no cost. This is wrong. There is a cost to 
this volatility. The technology, for instance, that is best adapted to 
one set of prices will not be that appropriate for another. And the 
costs can be significant. This is consistent with macro economic 
studies that show large asymmetries between the impacts of increases 
and decreases in oil prices.\52\ Thus this analysis of a 5-year period 
of high prices, which assumes that the only cost is the increased 
transfer abroad, provides a significant underestimate of the true 
economic costs. We have not, however, provided an estimate of this 
additional cost.
---------------------------------------------------------------------------
    \52\ See, e.g., Rodriguez, 2005.
---------------------------------------------------------------------------
Global Income and Price Effects
    The value of national income is affected by the prices of other 
goods the country imports or exports, and these too can indirectly be 
affected by the increase in the price of oil. If, for instance, a 
global increase in the price of oil leads to a decrease in the price of 
other commodities (because of a global slowdown), then America is 
thereby better off. These effects are complex and likely in any case to 
be small.
    There may be some commodities that the United States exports in 
which it has market power. In that case, we take firms as setting the 
price of exports to maximize profits. An oil price shock lowers income 
of buyers of American products, shifting the demand curve over to the 
left. The income effect (at least for a small perturbation) is just the 
change in profits at the old price. If markets are fairly competitive, 
the effect is small, but especially in areas of the New Economy where 
mark-ups are large, the losses in income can be significant. We have 
not, however, directly tried to estimate the magnitude of these 
effects.
    Most macro-economic analyses, however, assume that there are more 
than just these (neoclassical or) supply side effects. This is 
especially important when the economy is operating below full 
employment. We noted that with the increase in oil prices, Americans 
are poorer; they have that much less to spend on other goods--including 
goods made in the United States. There will be a reduction in aggregate 
demand, and the reduction in aggregate demand caused by an increase in 
oil prices is likely to result in a lower level equilibrium output.
The Macro-economic Counterfactuals
    The net effect depends on the macro-economic state of the world and 
how policy makers respond. If the economy is already in a world in 
which there is excess supply (demand constrained), then we need to 
focus on how monetary and fiscal authorities respond to stimulate 
demand. If the economy were in a state of excess demand, then the 
dampening of demand would lower inflationary pressure, but would leave 
output largely unaffected. Unfortunately, the post Iraq War world is 
one in which there has been excess supply (demand constrained output) 
in all of the major economies.
    Monetary policy response is determined by two offsetting factors. 
The oil price increase generates some inflationary pressures, and 
especially among central banks focusing on inflation, this leads to 
higher interest rates, exacerbating the slowdown of the economy. On the 
other hand, if central banks focus on aggregate demand and 
unemployment, it is conceivable that monetary policy could offset the 
adverse effects of oil price increases. If they fully offset the 
effect, then the only effect would be the transfer effect described 
earlier.
    Fiscal policy typically does not adjust quickly enough to stabilize 
the economy (and the effect of built-in automatic stabilizers is 
reflected in the multipliers discussed below). Again, there are two 
effects. For countries with fixed expenditures, then the increase in 
the oil price means that there is less to be spent on domestic goods, 
and that exerts a downward effect on the economy. On the other hand, 
for countries running active countercyclical fiscal policies, the 
slowdown in the economy could be offset by such policies.
    With Europe's Central Bank focusing on inflation, the higher 
inflation resulting from higher energy prices most likely contributed 
to higher interest rates than they otherwise would have been, and thus 
a further weakening of the economy. Fiscal constraints (the growth and 
stability pact) has also meant that fiscal policy could not respond; on 
the contrary, increased government expenditures on energy meant there 
was less to spend on domestically produced goods and services, again 
contributing to the weakening of aggregate demand. In short, for 
Europe, the contractionary effects including policy responses are 
greater than without them.
    In Japan, with interest rates close to zero in any case and fiscal 
policy stretched to its limits, probably little policy response can be 
attributed to the oil price increase.
    The United States is the most problematic. It appears that fiscal 
policy has not been closely related to the short run cyclical state of 
the economy. (The worsening of the fiscal position of the United States 
may have contributed to the resolve by some moderate Republicans not to 
cut taxes or expand expenditures as much as they otherwise would have 
done.\53\ In this sense, the oil price increase has probably had a 
negative effect on cyclical fiscal policy, i.e. the multipliers are 
larger than they would be if fiscal authorities took a ``neutral'' 
stance.) So too for monetary policy: the increased inflationary 
pressure from the high oil prices would, if anything, led to a 
tightening of monetary policy in response to the high oil price, 
leading to a larger multiplier.
---------------------------------------------------------------------------
    \53\ The tax cut of 2003 occurred roughly contemporaneously with 
the War in Iraq. It does not appear that the War played any significant 
effect either in support or opposition to its passage; though it is 
likely that had the magnitude of the expenditures been identified, it 
might have weighed against the tax cut.
---------------------------------------------------------------------------
    We have not carried out a full global general equilibrium analysis, 
but rely instead on results of standard macro-economic models. These 
suggest an ``oil multiplier'' of around 1.5 (achieved over 2 
years).\54\ Thus, assuming that the economy remains below its potential 
over the period of analysis, and focusing on the total impact (not the 
timing), our conservative estimate is increased to $187 billion,\55\ 
and our more reasonable estimate to $450 billion. These models too have 
no feedback from exports.\56\
---------------------------------------------------------------------------
    \54\ One-year multipliers are typically smaller, but our concern is 
with the total impact, not the timing of the impact (the focus of most 
short run GDP forecasting models.) See Blinder and Wescott, 2004, based 
on model simulations from Global Insight, Inc. simulation results 
supplied August 9, 2004 (results with a monetary policy reaction 
function engaged and disengaged were essentially the same); and 
Macroeconomic Advisers, LLC simulation results supplied August 2, 2004.
    \55\ Increased expenditures on oil can adversely affect consumption 
(as households have less to spend on other goods), investment (as 
firms, other than producers of oil, see profits decrease from what they 
otherwise would have been), and government expenditures on domestically 
produced goods (as with budget constraints, there is less to spend on 
these). Impacts on households are, for instance, marked. Median 
household expenditures on gasoline and home heating have increased 
about 5% of household income. Given the low (zero) level of savings, 
this can be expected to translate into an equivalent reduction in 
expenditures on other goods.
    \56\ While these models predict the effects are not fully felt for 
two periods, they also predict that the effects are felt even after the 
prices come down. Our calculations ignore the timing of the impacts. 
Oil price shocks have effects that are different (and presumably 
greater) than many other shocks, since they adversely affect all of the 
advanced industrial countries simultaneously.
---------------------------------------------------------------------------
Global Effects
    There are some studies, however, which obtain much larger results. 
The IMF's models yield results with longer lags, but with full effects 
that are almost 4 times as large.\57\
---------------------------------------------------------------------------
    \57\ See International Monetary Fund, ``The Impact of Higher Oil 
Prices on the Global Economy,'' Dec. 8, 2000, prepared by Research 
Department staff under the direction of Michael Mussa; cited in Blinder 
and Wescott.
---------------------------------------------------------------------------
    One of the standard studies, that of Hamilton, estimates that in 
the past a 10% increase in the price of oil has been associated with a 
1.4% decrease in GDP. A $5 increase in the price of oil thus implies a 
lowering of GDP by 2.8%, or approximately ($300 billion) per year that 
oil prices remain at that level. A 5-year price rise would generate 
costs of $1.5 trillion. Hamilton's analysis is consistent with an oil 
price multiplier that is much larger than the earlier studies.
    There are two possible explanations of the large discrepancies in 
results. The first has to do with the analysis of global general 
equilibrium results, and can be seen most sharply in the context of a 
``counterfactual'' which has governments maintaining a fixed level (or 
percentage of GDP) deficit. In the standard model, what limits the 
multiplier are leakages, income which is not spent ``domestically,'' 
but is taken out of the system, and spent abroad, or by government. In 
both cases, the feedback of income into further expenditures stops. But 
if we take a global equilibrium approach, then the money spent abroad 
is part of the system. If we include government endogenous expenditures 
as part of the system, then as taxes are taken out of disposable 
income, government spends the increased revenues, just as if the 
individual himself had spent them. (There can be even ``negative'' 
leakages; if the government maintains a fixed deficit to GDP ratio, a 
stimulus--such as a fall in oil prices--leads to a higher GDP, and so 
an increase in government expenditures. Thus, for a global closed 
economy, the multiplier increases from 1/s(1-t) + t, in which taxation 
reduces the multiplier, to 1/(s(1-t)-d, where taxation increases the 
multiplier (where s is the savings rate, t the tax rate on income, and 
d the allowable deficit to GDP ratio). Thus, if d = 0, s = .2 t = .25, 
the multiplier increases from 1/.4 to 1/.15, i.e. it increases by a 
factor of almost 3.\58\
---------------------------------------------------------------------------
    \58\ Y = (1-t)(1-s)Y + tY + dY + I + X-mY, since G-tY = dY, so Y = 
I + X/ (s(1-t) + m-d
---------------------------------------------------------------------------
    (Of course, we need to model the oil exporting countries as 
separate from the oil importing countries, and spending a substantially 
smaller fraction of the income on American goods than Americans would. 
If Saudi expenditure and savings patterns were identical to those of 
Americans, then the change in the price of oil would simply be a change 
in the distribution of income, but have no effect on aggregates, 
besides the supply side effects originating from the higher price of 
oil. We have slightly overestimated the negative effects on American 
GDP by assuming that there is no feedback from increased Saudi income 
back to the United States.)
    If we further include future consumption generated by extra 
savings, then even savings does not constitute a leakage, so long as 
over the prevailing time horizon, the economy remains in a demand 
constrained situation. In short, leakages are much, much smaller, when 
multiyear aggregate incomes are calculated. These dynamic feedbacks are 
even present in first year income. Thus, increased savings this year 
leads to increased wealth next year, and that increased wealth leads to 
increased output (if output is sensitive to demand). But rational 
consumers will realize this; \59\ their lifetime income has gone up, 
and so too will their current consumption. In calculating the cost of 
the War, we are concerned not just with the impact today, but the 
impact in all future years. Calculating the total multipliers requires 
assessing the fraction of future periods\60\ in which it is reasonable 
to assume that demand constraints will be binding.\61\
---------------------------------------------------------------------------
    \59\ See Neary and Stiglitz, 1983.
    \60\ When supply constraints are binding, individuals may displace 
consumption to other periods, so the net effect may be not much 
different from that which would prevail if demand constraints were 
always prevailing.
    \61\ Consider a simple two period model in which there is not the 
second feedback, but in which increased savings this period does lead 
to increased consumption next period. Then the two-period 
(Y1 + Y2) multiplier associated with increased 
investment the first period is, instead of 1/m (where m = s(1-t)), (1 + 
a(1+r))/m, where a is the marginal propensity to consume out of wealth. 
In a simple life cycle model with no bequests, where the only reason to 
save is for consumption in ``the'' future period(s), 1/1 = 1, so the 
multiplier has more than doubled.
---------------------------------------------------------------------------
    In the periods at hand, Europe, the United States, and Japan were 
all demand constrained throughout the relevant time, and government 
expenditures were very much constrained by the level of revenues 
(especially in Europe). In the very short run, it was clear that such 
constraints were not perfectly binding in the U.S., but government 
expenditures were tempered from what they otherwise would have been by 
the looming deficit. This is clearly true for the states and localities 
(which make up a third of total expenditure) but even true at the 
Federal level. Accordingly, we believe a multiple period multiplier 
that is substantially in excess of that generated by the partial 
equilibrium American models (generating, as we have noted multipliers 
around 1.5) is warranted. Numbers of the order of magnitude generated 
by the IMF model are totally reasonable, but to stay on the 
conservative side, we use a much smaller multiplier of 2 as our 
(conservative) ``moderate'' estimate. (We even believe the very large 
multipliers implicit in Hamilton's study are not implausible.)
    However, we do believe that great care must be used in employing 
studies based on the impact of earlier oil price shocks. Changes in the 
structure of the economy, the nature of the policy responses, and the 
state of the economy (the extent to which it was at or near full 
employment) can have large effects on the full response of an oil price 
increase. Earlier increases occurred at a time when the global economy 
was already facing inflationary pressures (the U.S. from trying to 
ignore the fiscal costs of the Vietnam War.) Under doctrines of 
monetarism, there were large responses--excessive--to the inflation 
resulting from the oil price shock. Globalization has put greater 
downward pressure on prices, so today, inflation is much more benign. 
Monetarism has been discredited, and even if de jure or de facto 
inflation targeting has meant that some countries put excessive focus 
on inflation, including the inflation generated by high oil prices--and 
thus monetary policy exacerbates the contractionary pressures of oil--
it does so less than it did in the earlier oil price shocks.
    Thus, while we believe that these global general equilibrium 
effects are significant, and should raise the multiplier considerably 
about 1.5 or 2, given the uncertainties associated with these global 
general equilibrium effects, we do not include them in our conservative 
estimate. For our ``moderate'' estimate, we use a 6-year impact and a 
multiplier of 2. We believe, however, that a substantially larger 
multiplier might be justified.\62\
---------------------------------------------------------------------------
    \62\ For instance, the IMF study cited earlier with much larger 
multi-year multipliers, near 4, would be associated with a total impact 
of $1.2 billion over 6 years.
---------------------------------------------------------------------------
Budgetary Costs
    The most difficult to estimate macro-economic costs are those 
associated with the increased expenditure. If we were not spending the 
money on the war, would we be spending it on something else? Would we 
have cut back spending, and had a smaller deficit? Would we have had 
the same deficit, but just more tax cuts?
    But this is only part of the counterfactual analysis. How would the 
Federal Reserve have responded to the different macro-economic 
situation? Would it have dampened or exacerbated these effects?
    These are standard questions in incidence analysis, in which public 
sector economists attempt to ascertain the consequence of one policy or 
another. One standard methodology focuses on expenditure switching: it 
is assumed that the government simply substitutes Iraq expenditures for 
other expenditures (some defense, some non-defense). This is the 
methodology upon which we focus here.
    Another methodology focused on marginally balanced budgets, where 
taxes are assumed to increase in tandem (from what they otherwise would 
have been; there may still be tax cuts, but they are somewhat smaller 
than they otherwise would have been.) The Bush administration seems 
undeterred in its commitment to make its tax cuts permanent, unaffected 
by the War, but Congress is showing some sensitivity to the size of the 
deficit.
    A third methodology assumes that the increased expenditure leads to 
higher deficits. We comment on the implications of this at the end of 
this section.
    The expenditure switching methodology focuses on two critical 
differences between expenditures on the war in Iraq and other public 
expenditures, such as investments in research, infrastructure, or 
education. The first is that the domestic content and leakages differ. 
Consider, for instance, a $1000 spent to hire Nepalese workers to 
perform services in Iraq. There is no ``first round'' effect on 
domestic GDP, and little impact on subsequent rounds (only to the 
extent that the Nepalese contractors buy goods made in the United 
States). By contrast, a $1000 spent on university research in the 
United States has a full $1000 first round impact, and high impacts in 
subsequent rounds. While ``multipliers'' associated with different 
kinds of expenditures are known to differ, there may be few 
expenditures with a lower multiplier than those in Iraq.
    There are no data on the basis of which to provide accurate 
estimates of the differences in multipliers and leakages. Assume, 
however, that in the case of normal investment expenditures (like 
university based research) the first round and subsequent rounds of 
expenditure have a leakage of .67, generating an overall multiplier of 
1.5. (The numbers are chosen to be deliberately very conservative.) By 
contrast, if the first round expenditure for Iraq is three-fourths that 
amount (again a conservative number, since it may well be much less) 
and leakages are the same thereafter, then the overall multiplier is 
1.1. Switching $500 bn (over the years of the war) to domestic 
investment would have resulted in increased GDP by $200 bn.
    (For some of the long run costs referred to in the first section of 
this paper, there are not likely to be large differences in 
multipliers. The increased disability and healthcare costs of Iraq War 
veterans are likely to have multipliers similar to that for investment 
expenditures. That is why we have conservatively focused on the impact 
of switching only $500 bn.)
    The second major difference is impacts on long run output. 
Investments in the public sector yield high returns, and so output 
would have been higher in the future. Expenditures on the Iraq war have 
no benefits of this kind. As a result, output in the future will be 
smaller. Assume, for instance, that of the direct costs of the war 
estimated in the previous section $500 billion \63\ were put into 
investments yielding conservatively a 6% real return on the investment, 
and using a (conservative) 4% discount rate, the present discounted 
value of the lost income is $750 billion.\64\
---------------------------------------------------------------------------
    \63\ Obviously, it is conceivable that far more than $500 billion 
out of the nearly $1 trillion in Iraq expenditures switch to 
investment.
    \64\ 6% is the certainty equivalent return. Investments in 
government research have been shown to have much higher rates of 
return. The natural discount rate to use (for discounting certainty 
equivalents) is the real T-bill rate, which in recent years has been 
close to zero or negative. Historically, it has been around 1.5%. The 
present discounted value of lost income of an investment I yielding a 
return of g at a discount rate of r is Ig/r, i.e. a ``multiplier'' of 
g/r. We have been conservative in choosing a low g and a high r, 
generating a multiplier of 1.5. The standard cut-off for government 
projects is 7%, and research yields are even higher. Using a value of g 
= .07 and r = .015 yields a multiplier of 4.67, which is substantially 
higher. In the case at hand, with forgone investment of $500 billion, 
the PDV of future lost income is $2.3 trillion.
    Note that it would be double counting to both count the value of 
the investment (the opportunity cost) and the value of the benefits 
that would have been generated by the investment. In a world with 
perfect markets and no costs to raising taxes, presumably there would 
be no difference between the discount rate and the marginal return to 
investment, in which case, the value of the investment would be equal 
to the present discounted value of the benefits generated by it. In the 
public sector, however, it is clear that there are often large 
discrepancies. A relatively modest investment in levees in New Orleans 
would have saved hundreds of billions of dollars.
---------------------------------------------------------------------------
    If the government had, instead, simply let the deficit grow, one 
would have to calculate the additional growth costs of that deficit. 
The additional deficit could, for instance, crowd out private 
investment, and calculations similar to those just performed would 
provide an estimate of the cost, somewhat larger than the costs 
estimated above.\65\
---------------------------------------------------------------------------
    \65\ If the private investment yields a return of 8%, and we 
discount at the rate of 4%, then the $500 billion of displaced 
investment has a PDV costs of $1 trillion, or $500 billion in excess of 
the direct costs. If the United States borrows the full amount abroad, 
and there are no effects on the interest rates at which the U.S. can 
borrow, then there is no displacement effect, and the only costs are 
the direct costs already estimated.   At the same time, the deficit-
financed expenditures will give rise to a positive aggregate demand 
effect. $500 billion of expenditures, in the assumptions given earlier, 
would have an additional multiplier effect of $50 billion. Note that in 
the case of full deficit financing, in the moderate scenario, the total 
budgetary impact is $1.185 trillion; if just 25% of this displaces 
private investment, the estimated macro-economic costs would be greater 
than under the expenditure switching analysis.
---------------------------------------------------------------------------
Other Macroeconomic Costs (Stock Market, Housing)
    Higher oil prices and higher interest rates to which the oil prices 
give rise also have effects on asset values. To the extent that these 
effects are greater than just the current year effects on profits, they 
suggest a persistence of the consequences that our previous analysis 
did not fully take into account, and the existence of large 
nonlinearities. This is evident in the industries that are particularly 
sensitive to oil prices, like the airline industry, where many firms 
face the prospect of bankruptcy.
    The surge in corporate profits in the last couple of years has not 
been accompanied by an increase in stock prices of the magnitude that 
would have been expected. Robert Wescott \66\ estimates that the value 
of the stock market is some $4 trillion less than would have been 
predicted on the basis of past performance. Assuming that the major 
factor contributing to that is the increase in oil prices, and that 20% 
of that increase in oil prices is due to Iraq leads to a cost of some 
$800 billion. This is several times the increase in the direct energy 
costs over the next few years. This may reflect the fact that we have 
grossly underestimated the effects by limiting our analysis to 6 years; 
or to the fact that there are large nonlinearities. \67\ But this 
decrease in corporate wealth does imply that consumption was lower than 
it otherwise would have been, with the attendant multiplier 
effects.\68\
---------------------------------------------------------------------------
    \66\ Personal correspondence
    \67\ For example, bankruptcy exerts a strong nonlinearity. Some key 
American industries (automobile, airlines) have been pushed near 
bankruptcy as a result of oil prices.
    \68\ Similar issues arise in the case of housing. Though there has 
been a boom in housing, presumably if the costs of operations were 
lower, the demand for housing services would have been higher, and 
prices would have been still higher. We have not estimated the value of 
the implied reduction in the value of housing from what it otherwise 
would have been.
---------------------------------------------------------------------------
    Uncertainty about future oil prices also has a dampening effect on 
investment. Firms do not know what technology is appropriate for the 
economic environment that will prevail, and respond to that uncertainty 
by postponing investment. This has both an effect on aggregate demand 
and aggregate supply in the short run. Again, we have not estimated the 
magnitude of these effects.
Summary
    The macro-economic costs are potentially very large; possibly even 
a multiple of the direct costs. Clearly, though ensuring supply of oil 
was one of the sometimes stated or inferred goals, the risks of Middle 
East instability that might result was often noted as one of the main 
risks of the venture. What has happened is certainly within the range 
of predicted consequences to the price of oil;\69\ and experiences in 
the seventies should have made us aware of how large the macro economic 
consequences could be. In short, while large, when adjusted for the 
larger size of the economy today, they are, we believe, totally 
plausible.\70\
---------------------------------------------------------------------------
    \69\ See, in particular, Nordhaus [2002].
    \70\ For most of the analysis, we have assumed that there has been 
excess capacity in the economy, i.e. the economy during the period of 
concern has been operating below its potential. This is evidenced not 
only by figures on capacity utilization and by the fact that the 
employment ratio (fraction of working age population working) is 
significantly below the level of the nineties. Even the unemployment 
rate is significantly higher than the 3.8% reached in the 90s (and 
there appeared to be no significant inflationary pressures even at that 
unemployment rate.) The factors that have led to a decrease in the 
NAIRU, including the competitive supply of goods from abroad, have 
continued to operate, so that there is every reason to believe that the 
NAIRU remains far lower than current unemployment rates. (See Stiglitz, 
2000). Stagnation and declines in real wages, higher than normal levels 
of ``disability,'' and large numbers of individuals claiming to be 
working part time involuntarily are consistent with this view of 
significant weaknesses in the labor market, i.e. significant potential 
for increasing incomes without generating increases in inflation. Our 
analysis assumes that potential output will exceed actual output for 
(in the conservative scenario) the next 2 years. This is consistent 
with most forecasts which see a slowing of growth to between 3.25% and 
3.5% in the period 2006-2008, particularly as consumption growth is 
dampened from its unsustainable levels fueled by rising real estate 
prices and low interest rates. Even if productivity growth slows from 
the 3% that marked the nineties, these rates are not sufficient to 
overcome the ``jobs deficit'' created in 2001-2003. In any case, even 
our ``moderate'' estimate projects that had oil prices not been as 
high, output would have been higher by amounts that are a fraction of 
the estimated gap between potential and actual output.

                                  Figure 5: Macro-economic Effects ($ billion)
----------------------------------------------------------------------------------------------------------------
                              Impact                                     Conservative             Moderate
----------------------------------------------------------------------------------------------------------------
Oil price increase
----------------------------------------------------------------------------------------------------------------
Transfer (supply side) effect                                                   125 \71\                    300
----------------------------------------------------------------------------------------------------------------
Aggregate demand \72\                                                                 62                    150
----------------------------------------------------------------------------------------------------------------
Global General Equilibrium                                                                                  150
----------------------------------------------------------------------------------------------------------------
Budgetary impacts
----------------------------------------------------------------------------------------------------------------
Expenditure switching                                                                                       200
----------------------------------------------------------------------------------------------------------------
Growth impacts (PDV)                                                                                        250
----------------------------------------------------------------------------------------------------------------
Total                                                                                187                   1050
----------------------------------------------------------------------------------------------------------------

    We therefore estimate that the total economic costs of the war, 
including direct costs and macroeconomic costs, lie between $1 and $2 
trillion, as shown in Figure 6.
---------------------------------------------------------------------------
    \71\ Conservative: $5 barrel for 5 years; moderate: $10 barrel for 
6 years.
    \72\ Conservative: (multi-year) multiplier of 1.5; moderate: 
(multi-year) multiplier of 2. 

                              Figure 6: Total Economic Costs of the Iraq War ($BN)
----------------------------------------------------------------------------------------------------------------
                      Scenario                                Conservative                    Moderate
----------------------------------------------------------------------------------------------------------------
Direct costs                                                                  839                          1189
----------------------------------------------------------------------------------------------------------------
Macroeconomic                                                                 187                          1050
----------------------------------------------------------------------------------------------------------------
                                                                             1026                          2239
----------------------------------------------------------------------------------------------------------------


List of Omitted Costs
Defense and destruction costs

          Costs of planning war \73\
---------------------------------------------------------------------------
    \73\ Estimated at $2.5 billion.
---------------------------------------------------------------------------
          All costs borne by other countries, including Iraq

                  Military costs
                  Destruction of property
                  Loss of life

          All costs of increased insecurity \74\
---------------------------------------------------------------------------
    \74\ Other than the indirect impact of increased insecurity in 
impeding oil supply response.

                  Increased costs of cross border flows
                  Reduced investment

          Consequences of Loss of credibility
          Value of reduced capability of responding to national 
        security threats elsewhere in the world

    Value of reduced capability of responding to domestic situations in 
which the National Guard or the Reserves might have been called upon 
(as in New Orleans).
Macroeconomic costs

          All costs of increased insecurity \75\
---------------------------------------------------------------------------
    \75\ Other than the indirect impact of increased insecurity in 
impeding oil supply response.

                  Increased costs of cross border flows
                  Reduced investment

          Indirect aggregate demand effects (as a result of 
        reduced incomes in trading partners) \76\
---------------------------------------------------------------------------
    \76\ Other than as reflected in higher multiplier in 
``conservative'' case.

          Costs of oil price volatility
                  Including on investment
                  Costs of bankruptcy \77\
---------------------------------------------------------------------------
    \77\ Other than as reflected in the multiplier analysis. The 
multiplier analysis focuses on demand side effects; bankruptcy costs 
are more correctly viewed as supply side effects (not included in the 
standard neoclassical model.)

          Reduced demands as a result of anti-American 
        sentiment
          Consequences of losses of asset values (arising from 
        increase in oil prices or otherwise)

                  Equity markets
                  Housing

          Consequences of tighter monetary policy as a result 
        of increased inflation \78\
---------------------------------------------------------------------------
    \78\ Other than as reflected in multiplier analysis.
---------------------------------------------------------------------------
          Consequences of worsening fiscal position

                  As a result of increased government 
                expenditures on oil \79\
---------------------------------------------------------------------------
    \79\ Other than as reflected in multiplier analysis.
---------------------------------------------------------------------------
                  As a result of increased expenditures on the 
                war \80\
---------------------------------------------------------------------------
    \80\ In the ``Conservative'' scenario. In the ``moderate'' 
scenario, we perform an expenditure switching incidence analysis, which 
provides a number that may partially reflect these costs.
---------------------------------------------------------------------------
Other Costs

          Costs of risks borne by individuals \81\ (including 
        compensation that would be required to make them willingly bear 
        risks)
---------------------------------------------------------------------------
    \81\ Other than as reflected in increased recruitment costs.
---------------------------------------------------------------------------
          Economic Cost of impairment to earnings potential and 
        quality of life for veterans who claim partial disability (est. 
        160,000) but were not wounded during the conflict
          Healthcare costs not borne by the government
IV. Concluding Remarks
    The most important things in life--like life itself--are priceless. 
But that doesn't mean that topics like defense, involving the 
preservation of our way of life and the protection of life itself, 
should not be subject to cool, hard analysis of the kind for which 
economics has long earned a reputation.
    Take the decision of when to go to war. Here, economic analysis 
employs the concept of option value. Even if one thinks war is 
inevitable or highly likely, there is a question of timing because 
there are costs and benefits to postponement. The enemy may be better 
prepared, but so may we. Normally, one goes into such a war under the 
presumption that one is going to win, and therefore a critical issue is 
managing the post-war occupation. Without adequate preparation, weapons 
may easily fall in the hands of insurgents--as in fact they did--
enormously increasing the occupation costs. With adequate armor, fewer 
American troops are likely to be injured or killed. As even the 
Secretary of Defense has admitted, in the rush to war, there was not 
time to provide adequate protection for the troops, protection that 
clearly the richest country in the world could have afforded and that 
its citizens would have expected.
    Economists also think about the value of information. In this 
situation, postponing war might have allowed us to gather better 
information with which to judge whether Iraq posed a real threat. This 
is not, as Americans say, Monday morning quarterbacking: there were 
already strong suspicions regarding our sources of intelligence on 
Iraq's alleged weapons of mass destruction. More time would have 
enabled the verification of this evidence. The value of this 
information would have been enormous. The possibility of war later on 
would have still been an option. Tens of thousands of lives would have 
been spared, and hundreds of billions of dollars saved.
    All of this leads to economists' constant urging that politicians 
undertake a cost benefit analysis before undertaking any project--
especially one with as significant consequences as war. This can and 
should be done even if certain elements of the costs and benefits are 
hard to value.
    If Congress had been informed of the range of costs, perhaps if 
they had been told that the costs might exceed a half trillion, or a 
trillion dollars, perhaps, in the end, they would have made the same 
decision. But perhaps they would have been a bit more cautious in 
making that decision, looked a little harder at the evidence, thought 
differently about how best to conduct the war.
    We have not attempted in this paper an overall assessment of 
whether the war was conducted in the most cost efficient manner, i.e. 
whether, given what has been achieved (however that is defined), those 
objectives could have been achieved at lower costs. We have taken the 
expenditures, as they have occurred, not as they might have been. The 
Administration has explicitly tried to fight the war on the cheap, that 
is limit direct commitments of American troops, even shortchanging body 
and personnel armor. In violating the Powell doctrine, this may be one 
of those instances of ``penny wise-pound foolish''. Certainly, the long 
run costs to the individuals and to society of the individuals who died 
or were badly maimed (not to mention the additional costs of 
recruitment) far exceed the savings from not purchasing better body 
protection. Many observers believe that the manner in which the War was 
conducted led to the extended insurgency, which too has greatly 
increased cost.
    Though we have suggested that many of the costs were within the 
range of what could have been anticipated, we have not sought in this 
paper to ascertain whether on the basis of the information available, 
the Administration could have made more reliable estimates. We do not 
address the question of whether the disparity between the predicted 
numbers and the actual numbers is a result of a deliberate attempt of 
the Administration to mislead the American people on the cost of the 
war, or of incompetence, going to War with information of low 
reliability and with best estimates that were far from the mark. In 
response to accusations about the existence of weapons of mass 
destruction and the connection with Al Qaeda, the Administration has 
been adamant that it did not intentional deceive the American people; 
it prefers charges of incompetence to those of malevolence. We have not 
attempted to ascertain the relative role of each in the failure to 
provide the American people with an accurate cost of the venture. At 
the very least, though, honesty would have required laying out the 
various scenarios, even if it attached low probabilities to those that 
in fact turned out to be the case.\82\
---------------------------------------------------------------------------
    \82\ An excellent example of the kind of analysis that could and 
should have been provided is that of Nordhaus (2002), who lays out 
various scenarios. The CBO and the House Budget Committee provided some 
estimates. Nordhaus points out, however, that they did not include 
scenarios involving extended engagement, occupation, and 
reconstruction.
---------------------------------------------------------------------------
    Americans could, and should have asked, are there ways of spending 
that money that would have enhanced our long run well-being--and 
perhaps even our security--more. Take the conservative estimate of a 
trillion dollars. Half that sum would have put Social Security on a 
firm grounding for the next seventy-5 years. If we spent even a small 
fraction of the remainder on education and research, it is likely our 
economy would be in a far stronger position. If some of the money spent 
on research were devoted to alternative energy technologies, or to 
providing further incentives for conservation, we would be less 
dependent on oil, and thereby more secure; and the lower prices of oil 
that would result would have obvious implications for the financing of 
some of the current threats to America's security. While we may not 
know what causes terrorism, clearly the desperation and despair that 
comes from the poverty that is rife in so much of the Third World has 
the potential of providing a fertile feeding ground. For sums less than 
the direct expenditures on the war, we could have fulfilled our 
commitment to provide.7% of our GDP to help developing countries--money 
that could have made an enormous difference, for the better, to the 
well-being of billions today living in poverty. We could have had a 
Marshall Plan for the Middle East, or the developing countries, that 
might actually have succeeded in winning the hearts and minds of those 
in the Middle East.
    What is clear is that the Administration's original estimates were 
strikingly low.\83\ Would the American people have had a different 
attitude toward going to war had the known the total cost? Would they 
have thought that there might be better ways of advancing the cause of 
democracy or even protecting themselves against an attack, that would 
cost but a fraction of these amounts? In the end, we may have decided 
that a trillion dollars spent on the War in Iraq was better than all of 
these alternatives. But at least it would have been a more informed 
decision than the one that was made. And recognizing the risks, we 
might have conducted the War in a manner different from the way we did.
---------------------------------------------------------------------------
    \83\ It is of interest that our ``moderate'' estimate is not 
dissimilar to Nordhaus' ``high'' (protracted and unfavorable) case, 
$1.9 trillion. His estimate of direct military spending, occupation, 
and reconstruction was $745. However, he did not include a number of 
the long run costs (such as health costs and disability benefits and 
increased recruiting costs), nor the adjustments between economic and 
budgetary costs noted in section III. His estimate of the direct impact 
on oil markets (the transfer effect) was $778 billion, which we believe 
to be more accurate than estimate of $300 million (in the moderate 
case), which was deliberately chosen to be conservative. He uses a 
``macro-economic oil'' multiplier that is similar to ours, but because 
he (realistically) assumes a large oil price effect, he obtains a 
larger macro-economic effect. He does not include any ``growth 
investment/displacement'' or ``expenditure switching'' effects in his 
analysis. Nordhaus' historical analysis puts some perspective on the 
magnitude of the expenditures: the projected direct expenditures in 
Table 1 are comparable to those of the Vietnam War ($494 billion), 
somewhat greater than the Korean war ($336 billion) and more than twice 
as large as World War I ($190 billion).
---------------------------------------------------------------------------
    Hamid Rashid, Robert Wescott, Joshua Goodman and Kwang Ryu made 
important contributions to the results reported here, which are 
gratefully acknowledged.
References
    Abeysinghe, Tilak, ``Estimation of direct and indirect impact of 
oil price on growth'', Economics Letters 73 (2001) 147--153
    Belasco, Amy. ``The Cost of Iraq, Afghanistan and Enhanced Base 
Security Since 9/11'', Congressional Research Service, Report for 
Congress, October 7, 2005
    Bennis, Phyllis and Leaver, Erik, ``The Iraq Quagmire: The Mounting 
Costs of the War and the Case for Bringing Home the Troops'', Institute 
for Policy Studies and Foreign Policy in Focus, August 2005
    Blinder, Alan and Robert Wescott, ``Higher Oil Prices Will Hurt the 
U.S. Economy''August 10, 2004, unpublished
    Congressional Budget Office, ``Estimated Costs of a Potential 
Conflict with Iraq,'' September 2002, available at http://www.cbo.gov/ 
and reports and estimates published in 2003, 2004, and 2005
    Hamilton, James D., ``What is an oil shock?'' NBER Working Paper 
Series 7755, June 2000
    Hartung, William, ``The Cost of the Iraq War'', Taxpayers for 
Common Sense, 2004
    House Budget Committee, Democratic Staff, Assessing the Cost of 
Military Action Against Iraq: Using Desert Shield/Desert Storm as a 
Basis for Estimates, September 23, 2002
    Kniesner, Thomas, Viscusi, Kip, Woock, Christopher, and Ziliak, 
James, ``How the Unobservable Productivity Biases the Value of a 
Statistical Life'', NBER W.P.11659, September 2005
    Neary, Peter, and J. E. Stiglitz, ``Toward a Reconstruction of 
Keynesian Economics: Expectations and Constrained Equilibria,'' 
Quarterly Journal of Economics, 98, Supplement, 1983, pp. 199-228.
    Nordhaus, William D. ``The Economic Consequences of a War with 
Iraq'', Cowles Foundation Discussion Paper Series, Yale University, 
December 2002
    Rodriguez, Rebeca and Marcelo Sanchez, ``Oil price shocks and real 
GDP growth: empirical evidence for some OECD countries'', Applied 
Economics, 2005, 37, 201--228
    Stiglitz, J. E. ``Reflections on the Natural Rate Hypothesis,'' 
Journal of Economic Perspectives, 11(1), Winter 1997, pp. 3-10.
    U.S. Government Accountability Office, ``Global War on Terrorism: 
DOD Should Consider All Funds Requested for the War When Determining 
Needs and Covering Expenses''; GAO-05-767
    Wallsten, Scott and Kosec, Katrina, ``The Economic Costs of the War 
in Iraq'', AEI/Brookings, working paper 05-19, September 2005

                                  

 SOLDIERS RETURNING FROM IRAQ AND AFGHANISTAN: The Long-term Costs of 
        Providing Veterans Medical Care and Disability Benefits

Linda Bilmes, Kennedy School of Government, Harvard University, January 
                                  2007


----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
   The views expressed in the KSG Faculty Research Working Paper Series are those of the author(s) and do not
     necessarily reflect those of the John F. Kennedy School of Government or of Harvard University. Faculty
  Research Working Papers have not undergone formal review and approval. Such papers are included in this series
    to elicit feedback and to encourage debate on important public policy challenges. Copyright belongs to the
                            author(s). Papers may be downloaded for personal use only.
----------------------------------------------------------------------------------------------------------------


EXECUTIVE SUMMARY:

    This paper analyzes the long-term needs of veterans returning from 
the Iraq and Afghanistan conflicts, and the budgetary and structural 
consequences of these needs. The paper uses data from government 
sources, such as the Veterans Benefit Administration Annual Report. The 
main conclusions of the analysis are that:
    (a) the Veterans Health Administration (VHA) is already overwhelmed 
by the volume of returning veterans and the seriousness of their 
healthcare needs, and it will not be able to provide a high quality of 
care in a timely fashion to the large wave of returning war veterans 
without greater funding and increased capacity in areas such as 
psychiatric care;
    (b) the Veterans Benefits Administration (VBA) is in need of 
structural reforms in order to deal with the high volume of pending 
claims; the current claims process is unable to handle even the current 
volume and completely inadequate to cope with the high demand of 
returning war veterans; and
    (c) the budgetary costs of providing disability compensation 
benefits and medical care to the veterans from Iraq and Afghanistan 
over the course of their lives will be from $350-$700 billion, 
depending on the length of deployment of U.S. soldiers, the speed with 
which they claim disability benefits and the growth rate of benefits 
and healthcare inflation.
    Key recommendations include: increase staffing and funding for 
veterans medical care particularly for mental health treatment; expand 
staffing and funding for the ``Vet Centers,'' and restructure the 
benefits claim process at the Veterans Benefit Administration.


----------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------
This paper was prepared for the Allied Social Sciences Association Meetings in Chicago, January, 2007. The views
   expressed here are solely those of the author and do not represent any of the institutions with which she is
                                         affiliated, now or in the past.
----------------------------------------------------------------------------------------------------------------


Introduction
    The New Year has brought with it the grim fact that 3000 American 
soldiers have been killed so far in Iraq. A statistic that merits equal 
attention is the unprecedented number of U.S. soldiers who have been 
injured. As of September 30, 2006, more than 50,500 U.S. soldiers have 
suffered non-mortal wounds in Iraq, Afghanistan and nearby staging 
locations--a ratio of 16 wounded servicemen for every fatality\1\ This 
is by far the highest killed-to-wounded ratio in U.S. history. For 
example, in the Vietnam and Korean wars there were 2.6 and 2.8 injuries 
per fatality, respectively. World Wars I and II had fewer than 2 
wounded servicemen per death.\2\
---------------------------------------------------------------------------
    \1\ Department of Veterans Affairs, Office of Public Affairs, 
``America's Wars'', September 30, 2006. This document shows that the 
number of non-mortal woundings in the Global War on Terror (combining 
Iraq, Afghanistan and surrounding duty stations) as of 9/30/06 was 
50,508 compared with 2333 deaths in battle plus 707 other deaths in 
theater. The comparison numbers for previous conflicts are as follows: 
Desert Storm/Desert Shield: 1.2 wounded per fatality; Vietnam: 2.6 
wounded per fatality; Korea: 2.8 wounded per fatality; World War II: 
1.6 wounded per fatality; World War I: 1.8 wounded per fatality; Civil 
War (union): .7 wounded per fatality; War of 1812:.5 wounded per 
fatality; American Revolution: .7 wounded per fatality. Note: the VA 
defines non-mortal wounded as those who are ``medically evacuated from 
theatre''. The Pentagon has several definitions, but the daily casualty 
reports on its website use a narrower definition referring to those 
wounded by shrapnel, bullets, and so forth. Using this narrow 
definition, the Iraq conflict has a ratio of 8 wounded per fatality--
still much higher than any previous war in U.S. history.
    \2\ Ibid.
---------------------------------------------------------------------------
    While it is welcome news and a credit to military medicine that 
more soldiers are surviving grievous wounds, the existence of so many 
veterans, with such a high level of injuries, is yet another aspect of 
this war for which the Pentagon and the administration failed to plan, 
prepare and budget. There are significant costs and requirements in 
caring for our wounded veterans, including medical treatment and long-
term healthcare, the payment of disability compensation, pensions and 
other benefits, reintegration assistance and counseling, and providing 
the statistical documentation necessary to move veterans seamlessly 
from the Department of Defense payroll into Department of Veterans 
Affairs medical care, and to process VA disability claims easily.
    To date, 1.4 million U.S. servicemen have been deployed to the 
Global War on Terror (GWOT), the Pentagon's name for operations in and 
around Iraq and Afghanistan.\3\ The servicemen who have been officially 
wounded are a small percentage of the veterans who will be using the 
veteran's administration medical system. Hundreds of thousands of these 
men and women will be seeking medical care and claiming disability 
compensation for a wide variety of disabilities that they incurred 
during their tours of duty.\4\ The cost of providing such care and 
paying disability compensation is a significant long-term entitlement 
cost that the U.S. will be paying for the next forty years.\5\
---------------------------------------------------------------------------
    \3\ As of September 30, 2006, 1,406,281 unique servicemembers have 
been deployed to the wars in Iraq and Afghanistan, according to the 
Department of Defense, Defense Manpower Data Center, and ``Contingency 
Tracking System.'' The Veterans Health Administration (VHA) Office of 
Public Health and Environmental Hazards, November 2006 uses the number 
1.4 million (as of November 2006). The Veterans Benefits Administration 
(VBA) lists 1,324,419 unique servicemen deployed to GWOT as of May 2006 
(prepared by VBA/OPA&I, 7/20/06).
    \4\ Based on an analysis of the first Gulf War in 1991, using the 
Gulf War Veterans Information System (GWVIS August 2006, chart on 
``Gulf War Veteran Outpatient Stays'', there were 297,125 veterans from 
that conflict who used VA medical care, or 48.4%. If the same 
percentages of Iraq/Afghan veterans use VA medical care then VA should 
expect approximately 700,000 new patients from the 1.4 million existing 
servicemen. Increasing the number of unique servicemen deployed will 
increase medical and disability usage.
    \5\ Veterans' disability pay is an entitlement program, like 
Medicare and Social Security. Once a veteran has been approved to 
receive disability pay, he or she is entitled to receive an annual 
payment and cost-of-living adjustments. The average age of a servicemen 
is about 25 years of age, therefore given current life expectancy 
rates, 40 years is a reasonable amount of years to project payment of 
benefits, even assuming the veteran does not claim for some years 
following the period of service.
---------------------------------------------------------------------------
    The objective of this paper is to examine the structural and 
budgetary requirements for caring for the returning war veterans from 
Iraq and Afghanistan, in terms of U.S. capacity to pay disability 
compensation, provide high quality medical care, and provide other 
essential benefits. The paper grew out of a previous paper that was co-
authored in January 2005 with Columbia University professor Joseph 
Stiglitz, in which the overall costs of the war in Iraq were estimated 
to exceed $2 trillion. One of the long-term costs cited in that paper 
was the cost associated with providing healthcare and disability 
benefits to veterans\6\ This paper expands on that topic.
---------------------------------------------------------------------------
    \6\ Bilmes, Linda and Stiglitz, Joseph, The Economic Costs of the 
Iraq War: An Appraisal Three Years After the Beginning of the Conflict, 
NBER Working Paper 12054 (http://www.nber.org/papers/w12054), February 
2006. The long-term budgetary costs associated with veterans health and 
disability cited in that paper ranged from $77 bn to $179 bn (depending 
on the length of the war), based on a population of 550,000 unique 
Iraqi war veterans. After we published this paper, a number of 
veteran's organizations including the American Legion and Veterans for 
America, contacted us in appreciation of our highlighting the needs of 
veterans. Veterans for America has particularly encouraged further 
research to understand the needs of the returning GWOT veteran's 
community.
---------------------------------------------------------------------------
    Unlike the previous paper,\7\ this study does not differentiate 
between veterans returning from Iraq, or Afghanistan or adjacent 
locations (such as Kuwait, an important staging post for Iraq) in the 
GWOT, for three reasons. First, nearly one-third of the servicemen 
involved in the war have been deployed two or more times and many of 
them have served both in Iraq and Afghanistan, and/or other 
locations.\8\ Second, the data available from the VA does not 
distinguish between the wars in Iraq and Afghanistan. Third, for the 
purposes of estimating the long-term costs of taking care of the 
returning veterans it does not matter where they served. However it is 
worth noting that the overwhelming majority of the deaths and injuries 
incurred in the GWOT have been in Iraq. Among those listed as wounded 
on the Pentagon's casualty reports, more than 95% have been injured in 
Iraq.\9\
---------------------------------------------------------------------------
    \7\ The Bilmes/Stiglitz cost of war paper did not include the costs 
of Afghanistan or other areas outside of Iraq in the GWOT. Had we 
included those costs, the total cost of war would have increased by 15-
20%.
    \8\ As of 9/30/06, some 421,206 (30%) of 1,406,281 unique 
servicemembers had been deployed twice or more to the wars in Iraq and 
Afghanistan. Army Times, December 11, 2006, page 14, from the 
Department of Defense, Defense Manpower Data Center, ``Contingency 
Tracking System.''
    \9\ As of 12/28/06, the DOD website listed 22,565 wounded in 
Operation Iraqi Freedom and 1084 wounded in Operating Enduring Freedom 
(Afghanistan). As noted previously, this is a narrower definition of 
injuries than the one used by the Veterans administration, which lists 
50,508 non-mortal woundings as of 9/30/06.
---------------------------------------------------------------------------
    This paper will analyze the following aspects of the returning 
veterans' needs.

        1.  Disability compensation

                  Projected Cost
                  Backlog of Pending Claims

        2.  Medical care

                  Capacity issues
                  Projected Cost
                  Veterans Centers
                  Transitioning from the Department of Defense 
                to VA care

        3.  Overall assessment of U.S. readiness to meet its 
        obligations to veterans
        4.  Recommendations

Methodology
    All statistics used in this paper are from government sources, 
including publications of the Veterans Benefit Administration (VBA), 
Veterans Health Administration (VHA), and other VA offices, as well as 
from the Congressional Budget Office, the Government Accountability 
Office, the Department of Defense, and Congressional testimony. The 
numbers are based on the servicemen involved in Operation Iraqi Freedom 
(OIF) and Operation Enduring Freedom (OEF, Afghanistan) unless 
otherwise noted.
    The cost and structural requirements for returning veterans will 
depend on several factors, including the number of U.S. troops 
stationed in the region and how long they are deployed; the rate of 
claims and utilization of health resources by returning troops, and the 
rate of increase in disability payment and healthcare costs over time. 
The model developed allows the user to vary these assumptions and may 
be obtained with permission from the author's website. The current 
analysis has been performed under three ``base'' scenarios that 
reflect, broadly the three options now under consideration for the war.

          Low Scenario: The low scenario assumes that the U.S. 
        begins withdrawing troops in 2007 and that all U.S. servicemen 
        are home by 2010. This pattern is roughly in parallel with the 
        recommendations of the bipartisan Baker Commission that 
        reported to President Bush in November 2006. This scenario 
        assumes that we will not deploy any new troops beyond the 1.4 
        million already participating in the war. It assumes that 44% 
        of U.S. troops will claim for disability payment over a period 
        of years, with 87% of claims granted, following the same claims 
        pattern as the first Gulf War in 1991.\10\ The low scenario 
        assumes that soldiers will initially receive the VA's 2005 
        average recurring benefit and that the annual rate of increase 
        will be 2.8% to reflect a cost-of-living adjustment only. (As 
        opposed to the actual growth rate over the past 10 years which 
        is 6.1%). The medical usage in this scenario is based on the 
        lowest possible uptake of medical care and a rate of increase 
        that is below the historical rate of healthcare inflation. In 
        short, this scenario shows the absolute basement level--the 
        lowest possible cost of providing medical care and disability 
        benefits to soldiers returning from Iraq and Afghanistan under 
        the most optimistic assumptions.
---------------------------------------------------------------------------
    \10\ Using the claims patterns from Gulf War I is almost certainly 
too conservative because that war was much shorter and relied primarily 
on aerial bombardment, whereas the current wars involve long 
deployments and ground warfare. However it provides a baseline for the 
current Iraq/Afghan wars.

          Moderate Scenario: The moderate scenario is based on 
        the current course of the war. This scenario uses the 
        Congressional Budget Office's expected deployment figures, 
        which would involve a gradual drawdown of troops but maintain a 
        small U.S. force in the region through 2015. Under this 
        scenario, the total unique servicemen involved in the conflict 
        will be 1.7 million, that is, 300,000 additional troops rotated 
        in over the period of years. Nearly 20,000 new troops are 
        regularly deployed into the two war zones each month, before 
        any ``surge'' or escalation of the conflict is considered.\11\ 
        This scenario uses the first Gulf War as the basis for 
        predicting the level of troops who will claim disability 
        benefits, the rate of approval of the claims, and the 
        utilization of medical resources. However a growth rate of 4.4% 
        is projected for claims benefits, half way between the base 
        cost-of-living adjustment and the actual growth rate of 6.1%.
---------------------------------------------------------------------------
    \11\ Footnote: Analysis of DMDC's Contingency Tracking System shows 
57,462 new first-time deployments between June 2006 and September 2006, 
an average 19,154 per month

          High ``Surge'' Scenario: This scenario assumes that 
        troop levels with surge in 2007 and that the total 
        participation in the war over time will eventually reach 2 
        million unique servicemen by 2016. It also models the potential 
        that half the veterans claim disability payments, which is a 
        reasonable possibility given the ferocity of the conflict and 
        the number of second and third deployments. This model also 
        looks at the impact of growth in claims benefit payments and 
        healthcare costs based on the actual growth rates over the past 
        10 years. If the U.S. decides to increase troops and all trends 
        on disability and healthcare continue as they have in the past, 
---------------------------------------------------------------------------
        this model presents the resulting cost consequences.

    The costs estimated in this study are budgetary costs to the U.S. 
government directly associated with the payment of disability benefits 
and medical treatment for returning OIF/OEF war veterans. The costs do 
not include the interest payments on the debt that is being incurred in 
borrowing money to finance the war. Future cash flows were discounted 
at a rate of 4.75% reflecting current long-term U.S. borrowing rates.
1. Disability Compensation
    There are 24 million living veterans, of whom roughly 11% receive 
disability benefits. Overall, in 2005 the U.S. currently paid $23.4 
billion in annual disability entitlement pay to veterans from previous 
wars, including 611,729 from the first Gulf War, 916,220 from Vietnam, 
161,512 Korean war veterans, 356,190 World War II veterans and 3 
veterans of World War I.\12\
---------------------------------------------------------------------------
    \12\ Ibid, page 33, ``Benefits delivery network'', RCS 20-0221
---------------------------------------------------------------------------
    All 1.4 million servicemen deployed in the current war effort are 
potentially eligible to claim some level of disability compensation 
from the Veterans Benefits Administration. Disability compensation is a 
monetary benefit paid to veterans with ``service-connected 
disabilities''--meaning that the disability was the result of an 
illness, disease or injury incurred or aggravated while the soldier was 
on active military service. Veterans are not required to seek 
employment nor are there any other conditions attached to the program. 
The explicit congressional intent in providing this benefit is ``to 
compensate for a reduction in quality of life due to service-connected 
disability'' and to ``provide compensation for average impairment in 
earnings capacity.'' The principle dates back to the Bible at Exodus 
21:25, which authorizes financial compensation for pain inflicted by 
another\13\
---------------------------------------------------------------------------
    \13\ See Veterans Benefits Administration ``Annual Benefits 
Report'' (ABR), 2005, page 17 for definition of disability compensation 
and see VA Disability Compensation Program, Legislative History, VA 
Office of Policy, Planning and Preparedness 2004 for principles behind 
the program.
---------------------------------------------------------------------------
    Disability compensation is graduated according to the degree of the 
veteran's disability, on a scale from 0 percent to 100 percent, in 
increments of 10%. Annual benefits range from a low of $1304 per year 
for a veteran with a 10% disability rating to about $44,000 in annual 
benefits for those who are completely disabled.\14\ The average benefit 
is $8890 although this varies considerably; Vietnam veterans average 
about $11,670.\15\ Additional benefits and pensions are payable to 
veterans with severe disabilities. Once deemed eligible, the veteran 
receives the compensation payment as a mandatory entitlement for the 
remainder of their lives, like Medicare and Social Security.
---------------------------------------------------------------------------
    \14\ Ibid, page 24, lists $1304 for 10% and $31,611 for 100%, but 
those with 100% disability also receive additional payments that 
combined result in an annual payment of approximately $44,000.
    \15\ Ibid, page 33.
---------------------------------------------------------------------------
    There is no statute of limitations on the amount of time a veteran 
can claim for most disability benefits. The majority of veteran's 
claims are within the first few years after returning, but some 
disabilities do not surface until years later. The VA is still handling 
hundreds of thousands of new claims from Vietnam era veterans for post-
traumatic stress disorder and cancers linked to Agent Orange exposure.
    The process for ascertaining whether a veteran is suffering from a 
disability, and determining the percentage level of a veteran's 
disability, is complicated and lengthy. A veteran must apply to one of 
the 57 regional offices of the Veterans Benefits Administration (VBA), 
where a claims adjudicator evaluates the veteran's service-connected 
impairments and assigns a rating for the degree to which the veteran is 
disabled. For veterans with multiple disabilities, the regional office 
combines the ratings into a single composite rating. If a veteran 
disagrees with the regional office's decision he or she can file an 
appeal to the VA's Board of Veterans Appeals. The Board makes a final 
decision and can grant or deny benefits or send the case back to the 
regional office for further evaluation. Typically a veteran applies for 
disability in more than one category, for example, a mental health 
condition as well as a skin disorder. In such cases, VBA can decide to 
approve only part of the claim--which often results in the veteran 
appealing the decision. If the veteran is still dissatisfied with the 
Board's decision to grant service connection or the percentage rating, 
he or she can further appeal it to two even higher levels of 
decisionmakers.\16\
---------------------------------------------------------------------------
    \16\ GAO, ``Veterans Benefits Administration: problems and 
Challenges Facing Disability Claims Processing'', GAO Testimony before 
the Subcommittee on Oversight and Investigations, House Committee on 
Veterans Affairs, May 18, 2000
---------------------------------------------------------------------------
    Most employees at VA are themselves veterans, and are predisposed 
to assisting veterans obtain the maximum amount of benefits to which 
they are entitled. However, the process itself is long, cumbersome, 
inefficient and paperwork-intensive. The process for approving claims 
has been the subject of numerous GAO studies and investigations over 
the years. Even in 2000, before the current war, GAO identified 
longstanding problems in the claims processing area. These included 
large backlogs of pending claims, lengthy processing times for initial 
claims, high error rates in claims processing, and inconsistency across 
regional offices.\17\ In a 2005 study, GAO found that the time to 
complete a veteran's claim varied from 99 days at the Salt Lake City 
regional office to 237 days at the Honolulu, Hawaii office\18\
---------------------------------------------------------------------------
    \17\ Ibid.
    \18\ ``Veterans Benefits: Further Changes in VBA's Field Office 
Structure could help improve disability claims processing'', GAO-06-
149, December 2005
---------------------------------------------------------------------------
    The backlog of pending claims has been growing since 1996. In 2000, 
VBA had a backlog of 69,000 pending initial compensation claims, of 
which one-third had been pending for more than 6 months.\19\ Today, due 
in part to the surge in claims from the Iraq/Afghan wars, VBA has a 
backlog of 400,000 claims.\20\ VBA now takes an average of 177 days (6 
months) to process an original claim, and an average of 657 days 
(nearly 2 years) to process an appeal.\21\ This compares unfavorably 
with the private sector healthcare/financial services industry, which 
processes an annual 30 billion claims in an average of 89.5 days per 
claim, including the time required for claims that are disputed.\22\
---------------------------------------------------------------------------
    \19\ Ibid
    \20\ The VBA's backlog of pending claims was 399,751 as of December 
9, 2006 (VBA Monday Morning Workload Report).
    \21\ The average time to process a claim is 177 days as of 9/06 and 
average time to process an appeal is 657 days (VA Performance and 
Accountability Report FY 2006).
    \22\ Bearing Point, Health Care/Financial Services industry report, 
September 14, 2006.
---------------------------------------------------------------------------
Projected Demand for Benefits among OIF/OEF Veterans
    It is difficult to predict with certainty the number of veterans 
from the two current wars who will claim for some amount of disability. 
The first Gulf War provides a baseline number although the Iraq and 
Afghanistan war has been longer and has involved more ground warfare 
than the Desert Storm conflict, which relied largely on aerial 
bombardment and 4 days of intense ground combat. However, in both 
conflicts, a number of veterans were exposed to depleted uranium that 
was used in anti-tank rounds fired by U.S. M1 tanks and U.S. A10 attack 
aircraft. Many disability claims from the first Gulf War stem from 
exposure to depleted uranium, which has been implicated in raising the 
risk of cancers and birth defects. Gulf War veterans also filed 
disability claims related to exposures to oil well fire pollution, low-
levels of chemical warfare agents, experimental anthrax vaccines, and 
experimental anti-chemical warfare agent pills called pyridostigmine 
bromide, the anti-malaria pill Lariam, skin diseases, and disorders 
from living in the hot climate,\23\ which are likely to be cited in the 
current conflict. However, the number of disability claims in the Iraq/
Afghan wars is likely to be higher due to the significantly longer 
length of soldier's deployments, repeat deployments, and heavier 
exposure to urban combat.
---------------------------------------------------------------------------
    \23\ Veterans for America, interview with Paul Sullivan, program 
director, 11/06.
---------------------------------------------------------------------------
    Following the Gulf War the criteria for receiving benefits were 
widened by Congress based on evidence of widespread toxic 
exposures.\24\ The same criteria for healthcare and benefits 
eligibility still apply to veterans of the Iraq and Afghanistan 
wars\25\ Forty-4 percent of those veterans filed disability claims for 
a variety of conditions and 87% were approved.\26\ The U.S. currently 
pays about $4 billion annually in disability payments to veterans of 
Desert Storm/Desert Shield.\27\
---------------------------------------------------------------------------
    \24\ ``Veterans Benefits Improvement Act 1994'' (Public Law 103-
446) and ``Persian Gulf War Veterans Act 1998'' (PL 105-277).
    \25\ In fact, the VA does not distinguish, for the purpose of 
claims processing, between the end of the first Gulf War and the 
present conflict (38 USC section 101(33) defines the Gulf War as 
starting on August 2, 1990, and continuing until either the President 
or the Congress declares an end to it and 38 CFR 3.317 defines the 
locations of the conflict).
    \26\ For Gulf War, the total claims filed to date are 271,192, of 
which 205,911 have been approved, 20,382 were denied and 34,899 are 
still pending (GWVIS, August 2006, p.7: Granted Service Connection 
+Denied Service Connection +Claims Pending)
    \27\ Gulf War total annual payment $4.3 billion (Ibid., VBA, ABR 
2005 pp. 33)
---------------------------------------------------------------------------
    Of the 1.4 million U.S. servicemen who have so far been deployed in 
the Iraq/Afghan conflicts, 631,174 have been discharged as of September 
30, 2006. Of those 46% are in the full-time military and 54% are 
reservists and National Guardsmen.\28\ Therefore the total population 
that is potentially eligible for disability benefits is this number 
(631,174). To date 152, 669 servicemen have applied for disability 
benefits and of those, 104,819 have been granted, 34,405 are pending 
and 13,445 have been rejected. This implies an approval rate of 88% to 
date.\29\
---------------------------------------------------------------------------
    \28\ VHA, Office of Public Health and Environmental Hazards, 
November 2006
    \29\ VBA ``Compensation and Benefit Activity among veterans 
deployed to the GWOT'', July 20, 2006, obtained under Freedom of 
Information Act by the National Security Archive at George Washington 
University.
---------------------------------------------------------------------------
    We have estimated the cost of providing disability benefits to 
veterans under three scenarios. Under the low scenario, we expect that 
as in the first Gulf War, 44% of the current veterans will eventually 
claim disability, with an approval rate of 87%. We estimate that the 
remaining 900,000 troops will be discharged in equal installments over 
the next 4 years bringing all U.S. troops home by 2010. We expect the 
same percentage of these troops to claim for disabilities, with the 
same approval rate, within a further 5 years. We have assumed that on 
average, claims are lower than average rate, at the lower rate of new 
claimants from the first Gulf War of $6506.\30\ This is probably an 
excessively conservative assumption because it projects the same rate 
of serious injuries as occurred in Gulf War I, when in fact we already 
know that more than the actual rate of serious injuries is much 
higher.\31\
---------------------------------------------------------------------------
    \30\ Ibid, ABR 2005, p33
    \31\ Of the 50,508 non-mortally wounded soldiers in OIF/OEF there 
are at least 10,000 serious injuries such as brain injuries, spinal and 
amputations, according to DOD sources. See also Wallsten and Kosec, 
AEI-Brookings Working Paper 05-19, September 2005, estimate of 20% 
serious brain injuries, 6% amputees and 24% other serious injuries.
---------------------------------------------------------------------------
    The moderate scenario assumes that the war continues through 2014 
with a total deployment of 1.7 million over the course of the war, and 
with gradually reduced deployment. It assumes that a slightly higher 
percentage of eligible veterans (50%) make claims, which is more 
realistic given deployment lengths. This scenario uses the actual 
average VA benefit payment of $8890. It assumes the rate of increase in 
benefits is 4.4%, midway between the mandatory Cost of Living 
Adjustment and the actual 10-year growth rate of 6.1%. The high 
scenario models the impact of a surge in forces bringing the total 
unique deployments to 2 million. It assumes 50% of eligible forces 
claim benefits and a rate of 6.1% increase, which is the actual rate 
over the past 10 years. It further assumes a higher rate of medical 
inflation (10% vs. 8% in the low and moderate scenarios).

                          Table 1: Long-term Cost of Veterans Disability Benefits \32\
----------------------------------------------------------------------------------------------------------------
                           Scenario                                  Low            Moderate           High
----------------------------------------------------------------------------------------------------------------
Disability Benefits ($bn)                                               67.63           109.98           126.76
----------------------------------------------------------------------------------------------------------------

 Backlog of Pending Disability Claims
---------------------------------------------------------------------------
    \32\ The figures in Table 1 represent the present value of 
disability benefits over 40 years for eligible veterans projected under 
the three scenarios described.
---------------------------------------------------------------------------
    The issue is not simply cost but also efficiency in providing 
disabled veterans with their benefits. In addition to all the problems 
detailed above, the Iraq and Afghan war veterans are filing claims of 
unusually high complexity (see table 3). To date, the backlog of 
pending claims from these recent war veterans is 34,000, but the vast 
majority of servicemen from this conflict have not yet filed their 
claims. Even without the projected wave of claims, the VA has an 
overall backlog of 400,000, including thousands of Vietnam era claims. 
Including all pending claims and other paperwork, the VA's backlog has 
increased from 465,623 in 2004 to 525,270 in 2005 to 604,380 in 
2006.\33\
---------------------------------------------------------------------------
    \33\ VBA's ``Monday Morning Report'' of pending claims and other 
work performed at regional offices, cites: 11/25/06: 604,380; 11/26/05: 
525,270; 11/27/04: 465,623.
---------------------------------------------------------------------------
    The fact that the VBA is largely sympathetic to the plight of 
disabled veterans should not obscure the fact that this system is 
already under tremendous strain. If only one fifth of the returning 
veterans who are eligible claim in a given year, and the total claims 
reaches a high of 38% effective rate (44%* 88% approval rate), the 
number of likely claims at the VBA over the next 10 years can be 
expected to rise from 104,819 to more than 600,000.\34\ (See table 2).
---------------------------------------------------------------------------
    \34\ This projection based on the moderate scenario described 
previously, based on 1.7 million unique servicemen and CBO troop 
deployment figures through 2014.

                      Table 2:  Projected Increase in Disability Claims (moderate scenario)
----------------------------------------------------------------------------------------------------------------
          Disability Benefits              2006      2007      2008      2009       2010       2011       2012
----------------------------------------------------------------------------------------------------------------
Discharged                                          118,758   118,758   118,758    118,758    118,758    118,758
cum                                                 118,758   237,517   356,275    475,034    593,792    712,551

Eligible claimants
  Existing discharged
    non-claimants                         526,355   526,355   526,355   526,355    526,355    526,355    526,355
  Newly discharged                             --   118,758   237,517   356,275    475,034    593,792    712,551
  Total potential claimants                         645,113   763,872   882,630  1,001,389  1,120,147  1,238,906
Claim rate                                    22%       22%       27%       33%        38%        44%        44%
  New claims                                   --   140,312   207,678   287,958    381,154    487,264    538,924
  Current beneficiaries                   104,819   104,819   104,819   104,819    104,819    104,819    104,819
  Total claims (number)                   104,819   245,131   312,497   392,777    485,973    592,083    643,743
                                        ------------------------------------------------------------------------
    Total claims ($bn)                       0.93      2.27      2.89      3.63       4.49       5.47       5.95
----------------------------------------------------------------------------------------------------------------



    If nothing is done to address the problem, the claims backlog will 
continue to grow throughout the period of the war, along with growing 
inequity between different regional offices. A key question is: what is 
a reasonable amount of time for the U.S. to make a disabled veteran 
wait for a disability check? This paper proposes several actions that 
could reduce the length of time for processing from zero to 90 days. 
(Described in more detail in section 4: Recommendations). These 
include: (a) greater use of the ``Vet Centers'' to provide assistance 
for veterans to file their claims, (b) automatically granting all or 
some of the claims, with subsequent audits to deter fraud, and (c) 
streamlining and technologically upgrading the claims system into a 
``fast track'' where veterans receive a quick decision on most claims.
2. Veterans Medical Care Shortfall
    The VA's Veterans Health Administration provides medical care to 
more than 5 million veterans each year. This care includes primary and 
secondary care, as well as dental, eye and mental healthcare, hospital 
inpatient and outpatient services. The care is free to all returning 
veterans for the first 2 years after they return from active duty; 
thereafter the VA imposes copayments for various services, with the 
amounts related to the level of disability of the veteran.\35\
---------------------------------------------------------------------------
    \35\ 38 USC section 1710
---------------------------------------------------------------------------
    The VA has long prided itself on the excellence of care that it 
provides to veterans. In particular, VA hospitals and clinics are known 
to perform a heroic job in areas such rehabilitation. Medical staff is 
experienced in working with veterans and provides a sympathetic and 
supportive environment for those who are disabled. It is therefore of 
utmost important that the quality of care be maintained as the demand 
for it goes up.
    However, the demand for VA medical treatment is far exceeding what 
the VA had anticipated. This has produced long waiting lists and in 
some cases simply the absence of care. To date, 205,097, or 32% of the 
631,174 eligible discharged OEF/OIF veterans have sought treatment at 
VA health facilities. These include 35% of the eligible active duty 
servicemen (101,260) and 31% of the eligible Reservists/Guards 
(103,837). To date, this number represents only 4% of the total patient 
visits at VA facilities--but it will grow. According to the VA, ``As in 
other cohorts of military veterans, the percentage of OIF/OEF veterans 
receiving medical care from the VA and the percentage of veterans with 
any type of diagnosis will tend to increase over time as these veterans 
continue to enroll for VA healthcare and to develop new health 
problems.\36\''
---------------------------------------------------------------------------
    \36\ VHA, Office of Public Health and Environmental Hazards, 
November 2006, Ibid, p. 14
---------------------------------------------------------------------------
    The war in Iraq has been noteworthy for the types of injuries 
sustained by the soldiers. Some 20% have suffered brain trauma, spinal 
injuries or amputations; another 20% have suffered other major injuries 
such as amputations, blindness, partial blindness or deafness, and 
serious burns.
    However, the largest unmet need is in the area of mental 
healthcare. The strain of extended deployments, the stop-loss policy, 
stressful ground warfare and uncertainty regarding discharge and leave 
has taken an especially high toll on soldiers. Thirty-6 percent of the 
veterans treated so far--an unprecedented number--have been diagnosed 
with a mental health condition. These include PTSD, acute depression, 
substance abuse and other conditions. According to Paul Sullivan, a 
leading veterans advocate, ``The signature wounds from the wars will be 
(1) traumatic brain injury, (2) post-traumatic stress disorder, (3) 
amputations and (4) spinal chord injuries, and PTSD will be the most 
controversial and most expensive'' \37\ (see Table 3).
---------------------------------------------------------------------------
    \37\ Paul Sullivan, Program Director of Veterans for America, 12/
23/06 interview


          Table 3:  VHA Office of Public Health, November 2006
------------------------------------------------------------------------
  Frequency of Possible Diagnoses Among Recent Iraq and Afghan Veterans
-------------------------------------------------------------------------
                                                      (n = 205,097)
       Diagnosis (Broad ICD-9 Categories)       ------------------------
                                                   Frequency *       %
------------------------------------------------------------------------
Infectious and Parasitic Diseases (001-139)              21,362    10.4
Malignant Neoplasms (140-208)                             1,584     0.8
Benign Neoplasms (210-239)                                6,571     3.2
Diseases of Endocrine/Nutritional/Metabolic              36,409    17.8
 Systems (240-279)
Diseases of Blood and Blood Forming Organs (280-          3,591     1.8
 289)
Mental Disorders (290-319)                               73,157    35.7
Diseases of Nervous System/Sense Organs (320-            61,524    30.0
 389)
Diseases of Circulatory System (390-459)                 29,249    14.3
Disease of Respiratory System (460-519)                  36,190    17.6
Disease of Digestive System (520-579)                    63,002    30.7
Diseases of Genitourinary System (580-629)               18,888     9.2
Diseases of Skin (680-709)                               29,010    14.1
Diseases of Musculoskeletal System/Connective            87,590    42.7
 System (710-739)
Symptoms, Signs and Ill Defined Conditions (780-         67,743    33.0
 799)
Injury/Poisonings (800-999)                              35,765    17.4
------------------------------------------------------------------------
* Hospitalizations and outpatient visits as of 9/30/2006; veterans can
  have multiple diagnoses with each healthcare encounter.
A veteran is counted only once in any single diagnostic category but can
  be counted in multiple categories, so the above numbers add up to
  greater than 205,097.


    Additionally, far more returning Iraqi war veterans (than those in 
previous conflicts) are likely to seek such help, in part due to 
awareness campaigns run by veteran's organizations through the press. 
There is no reliable data on the length of waiting lists for returning 
veterans, but even the VA concedes that they are so long as to 
effectively deny treatment to a number of veterans. In the May 2006 
edition of Psychiatric News, Frances Murphy M.D., the Under Secretary 
for Health Policy Coordination at VA, said that mental health and 
substance abuse care are simply not accessible at some VA facilities. 
When the services are available, Dr. Murphy asserted that, ``waiting 
lists render that care virtually inaccessible.'' \38\
---------------------------------------------------------------------------
    \38\ Frances Murphy, May 2006, Psychiatric News
---------------------------------------------------------------------------
    The VA curiously maintains that it can cope with the surge in 
demand, despite much evidence to the contrary. For the past 2 years, 
the VA ran out of money to provide healthcare. In FY 2006, the VA was 
obliged to submit an emergency supplemental budget request for $2 
billion, which included $677 million to cover an unexpected 2% increase 
in the number of patients (half of which were OIF/OEF patients), $600 
million to correct its inaccurate estimate of long-term care costs, and 
$400 million to cover an unexpected 1.2% increase in the costs per 
patient due to medical inflation. The previous year, (FY 2005), VA 
requested an additional $1 billion, of which one-quarter was for 
unexpected OIF/OEF needs and remainder was related to overall under-
estimation of patient costs, workload, waiting lists, and dependent 
care. The GAO analysis of these shortfalls concluded that they were due 
to the fact that VA was modeling its projections based on 2002 data, 
before the war in Iraq began.\39\
---------------------------------------------------------------------------
    \39\ GAO-06-430R, ``VA Health Care Budget Formulation'', pp 18-20.
---------------------------------------------------------------------------
    The budget shortfalls and the statement by Dr. Murphy suggest that 
the volume of veterans returning from Iraq and Afghanistan will not be 
able to obtain the healthcare they need, particularly for mental health 
conditions. Such veterans are at high risk for unemployment, 
homelessness, family violence, crime, alcoholism, and drug abuse, all 
of which impose an additional human and financial burden on the nation. 
In addition, many of these social services are provided by state and 
local governments which are already under tremendous strain.
Projected Medical Costs
    The number of veterans who will eventually require treatment can be 
estimated using a baseline of the utilization during the first Gulf 
War, in which the VA is providing medical care to 48% of veterans. The 
average annual cost of treating veterans in the system is now 
$5000,\40\ although it is difficult to know whether the more grievous 
injuries and disabilities of the current conflict will drive up costs 
per patient.
---------------------------------------------------------------------------
    \40\ This amount is calculated by estimating the budget 2006 
supplemental budget request for OIF/OEF veterans per additional 
patient, using the GAO analysis in GAO-06-430R
---------------------------------------------------------------------------
    The costs of providing medical care have been calculated under the 
three scenarios. Under the low scenario, under which the U.S. will 
deploy no new troops, the ceiling for medical care is 48% of OIF/OEF 
veterans. If half of all veterans eventually seek medical treatment 
from the VA that will produce a demand of some 700,000 veterans. 
However, due to the fact that veterans are eligible for free care 
during the first 2 years after discharge, we can expect a wave of 
returning war veterans within 2 years of their discharge date. 
Additionally, since active duty veterans claim medical care at a higher 
rate (than Guards/Reservists) and have been deployed in more of the 
most hazardous front-line task come home, we can expect that the 
average cost of treating such veterans increases as well as a high 
level of demand.\41\
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    \41\ VHA, Office of Public Health and Environmental Hazards, Ibid.
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    If the demand for medical care increases as projected to some 
700,000 or more veterans, there is a serious risk that the VA, which is 
already overwhelmed, will be unable to meet the medical needs of 
returning OIF/OEF veterans. Additional staff is needed in important 
areas such as brain trauma units and mental health. The VA also needs 
to expand systems such as triage nursing, to help leverage scarce 
medical resources.
    Even assuming that no more troops are deployed, the long-term cost 
of treating returning veterans will reach $208 billion. This however 
assumes that the supply of healthcare exists to treat them. If the 
number of troops continues to grow as in the moderate then cost of 
providing lifetime care rises to $315 billion. The annual budget 
payment under this scenario will reach $3 bn by 2010 and more than 
double by 2014. (See Table 4)


                                     Table 4:  Projected Cost of Providing VA Medical Care (moderate scenario) \42\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      MEDICAL COSTS                          2006      2007      2008      2009       2010       2011       2012       2013       2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Discharged                                            631,174   749,932   868,691   987,449  1,106,208  1,224,966  1,343,725  1,462,483  1,581,242
% OIF/OEF veterans seeking
    care                                                     32.50%    33.96%    35.49%    37.09%     38.76%     40.50%     42.32%     44.23%     46.22%
  Total OIF/OEF veterans
    seeking care                                            205,132   254,696   308,305   366,224    428,731    496,123    568,711    646,827    730,822
Cost/medical claim                                          $ 5,000   $ 5,400   $ 5,832   $ 6,299  $    6,80  $    7,34  $    7,93  $    8,56  $    9,25
                                                                                                           2          7          4          9          5
  Total cost ($bn)                                              1.0       1.4       1.8       2.3        2.9        3.6        4.5        5.5        6.8
---------------------------------------------------------------------
NPV                                                         $315.23
--------------------------------------------------------------------------------------------------------------------------------------------------------


  Table 4: Projected Cost of for Providing VA Medical Care (moderate 
                             scenario) \42\

    However, these scenarios are conservative in assuming that only 
half of the returning veterans will eventually seek medical treatment 
from the VA and that the level of healthcare inflation will remain 
constant at 8%. Under a worst-case scenario, if troops levels rise to 2 
million and if health inflation rises to the double-digit levels 
experienced during the nineties, we can expect the total cost of 
providing lifetime medical care to veterans to reach $600 bn.\43\
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    \42\ The NPV is calculated over 40 years, at a discount rate of 
4.75%, with a peak rate of 50% veterans claiming care by 2016.
    \43\ High scenario assuming 10% medical inflation rate.
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Veterans Centers

    How can the VA possibly handle the number of returning troops who 
require care, as well as their families, especially for mental health 
conditions? Perhaps the most creative and successful innovation in the 
VA in past two decades has been the introduction of the ``Vet 
Centers''--207 walk-in storefront centers where veterans or their 
families can obtain counseling and reintegration assistance. The 
centers, operated by VA's ``Readjustment Counseling Service'' are 
popular with veterans and their families and--at a total cost of some 
$100m per year--provide a highly cost-effective option for veterans who 
are not in need of acute medical care. The Vet Centers are particularly 
helpful for families, for example they provide a venue for a soldier's 
spouse to seek guidance of the veteran is showing mental distress but 
will not seek help. They also supply bereavement counseling to 
surviving families of those killed during military service. And they 
offer a friendlier environment often staffed with recent OEF/OIF combat 
veterans and other war veterans--unlike VA regional offices which tend 
to be stuffy, bureaucratic offices located in downtown locations.\44\
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    \44\ Opinion based on conversations with veterans organizations.
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    To date, 144,000 veterans have sought assistance at these 
centers.\45\ However the demand for their services is threatening their 
ability to provide care. Vet Center managers recently surveyed by 
Congress said that in 50% of the Centers, the increasing workload is 
affecting their ability to treat veterans. Some 40% of the Vet Centers 
have directed veterans for whom individualized therapy would be 
appropriate into group therapy, and more than one-quarter of the 
Centers have limited or plan to limit family therapy. Nearly 17% have 
established waiting lists (or are in the process of setting them 
up).\46\
---------------------------------------------------------------------------
    \45\ Vet Center costs document, page 3B-11
    \46\ October 2006 report issued by the House Veterans Affairs 
Committee, testimony by Vet Center managers.
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    Currently the centers do not assist veterans in filing disability 
claims, but provided that the facility had sufficient secure storage 
space to handle such documents, there is no reason why they could not. 
The VA has recommended hiring an additional 1000 claims adjudicators--
who could be placed in the Vet Centers (an average of 5 each) to help 
veterans figure out how to claim. The cost of expanding the number of 
centers, hiring additional staff and placing more claims adjudicators 
in the centers is minimal.
Transition from DOD Payroll to VA Care

    One of the chief bottlenecks in the current system is the soldier's 
transition from the DOD payroll into the VA benefit system. There are 
three primary ways that a soldier makes this transition.
    A veteran who is discharged regularly, and has some level of 
disability will typically have to wait 6 months before receiving his or 
her disability check from the VA. This is a period during which the 
veterans, particularly those in a state of mental distress, are most at 
risk for serious problems, including suicide, falling into substance 
abuse, divorce, losing their job, or becoming homeless.
    A second route is to exit via the ``Benefits Delivery at 
Discharge'' (BDD) program. This successful program allows soldiers to 
process their claims up to 6 months prior to discharge, so they can 
begin receiving benefits as soon as they leave the military. However, 
the use of this route has become much more difficult due to the 
extended deployments, the use of ``stop-loss'' orders, and the 
resulting unpredictability about when a soldier will be discharged. 
Additionally, this program is not available to Reservists and 
Guardsmen, who comprise 40% of the forces in Iraq and Afghanistan. The 
VBA claim denial rate is twice as high for Reserve and Guard veterans, 
possibly due in part to their lack of access to BDD.\47\ Consequently 
the usage of this apparently better route has not been increasing as 
would have been expected.\48\
---------------------------------------------------------------------------
    \47\ Active Duty denial rate is 7.6 percent compared with National 
Guard and Reserve denial rate of 17.8 percent, See Footnote 28
    \48\ Congressional testimony of Jack McCoy, VBA, March 16, 2006, 
http://www.va.gov/OCA/testimony/hvac/sdama/060316JM.asp and a VA fact 
sheet indicate 26,000 BDD claims in 2003, 39,000 in 2004, and 46,000 in 
2005. http://www1.va.gov/opa/fact/tranasst.asp.
---------------------------------------------------------------------------
    For veterans who are more seriously wounded, the process is more 
complicated as they transition from medical facilities run by DOD into 
medical facilities run by the VA. For example a wounded veteran may be 
treated initially at Walter Reed Army Hospital and then transferred to 
a VA facility. Veterans experience some difficulties is securing the 
maximum amount of disability benefits at discharge during such 
transitions, due to a lack of compatibility between the DOD and VA 
paperwork and tracking systems. The VA complains that the records they 
receive from DOD are delayed or contain errors, in many cases it is the 
situation where the data that is tracked is not compatible. This not 
only creates unnecessary problems in moving veterans through the system 
but it also makes it more difficult for the data to be analyzed in 
medical and other studies.
    Additionally there are the problems caused by the Pentagon's poor 
accounting system. GAO investigators have found that DOD pursued 
hundreds of battle-injured soldiers for payment of non-existent 
military debts--because DOD financial systems erroneously reported that 
they were indebted. For example, one Army Reserve Staff Sergeant, who 
lost his right leg below the knee, was forced to spend 18 months 
disputing an erroneously recorded debt of $2231 which prevented him 
from obtaining a mortgage to purchase a home. Another staff sergeant 
who suffered massive brain damage and PTSD had his pay stopped and 
utilities turned off because the military erroneously recorded a debt 
of $12,000. Hundreds of injured soldiers may be in this situation.\49\
---------------------------------------------------------------------------
    \49\ GAO-06-494, ``Hundred of Battle-Injured GWOT Soldiers Have 
Struggled to Resolve Military Debts''
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Overall Assessment and Cost

    Overall the U.S. is not adequately prepared for the influx of 
returning servicemen from Iraq and Afghanistan. There are three major 
areas in which it is not prepared: claims processing capacity for 
disability benefits; medical treatment capacity, in terms of the number 
of healthcare personnel available at clinics throughout the country, 
particularly in mental health; and third, there is no preparation for 
paying the cost of another major entitlement program.
    As discussed earlier, the backlog in claims benefit is already 
somewhere between 400,000 and 600,000. Unless major changes are made to 
this process, the number of claims pending and requiring attention will 
reach some 750,000 within the next 2 years and the pendency period will 
increase proportionately, resulting in more veterans falling through 
the cracks that could have been avoided. In addition, veterans whose 
claims reach different centers in different parts of the country will 
have widely different experiences, proving highly unfair to those who 
just happen to be located in areas of greater backlog.
    The quality of medical care is likely to continue to be high for 
veterans with serious injuries treated in VA's new polytrauma centers. 
However, the current supply of care makes it unlikely that all 
facilities can offer veterans a high quality of care in a timely 
fashion. Veterans with mental health conditions are most likely to be 
at risk because of the lack of manpower and the inability of those 
scheduling appointments to distinguish between higher and lower risk 
conditions. If the current trends continue, the VA is likely to see 
demand for healthcare rising to 750,000 veterans in the next few years, 
which will overwhelm the system in terms of scheduling, diagnostic 
testing, and visiting specialists, especially in some regions.\50\
---------------------------------------------------------------------------
    \50\ However, the availability of medical care may vary 
significantly by region.
---------------------------------------------------------------------------
    The cost of providing disability benefits and medical care, even 
under the most optimistic scenario that no additional troops are 
deployed and the claims pattern is only that of the previous Gulf War, 
would suggest that at a minimum the cost of providing lifetime 
disability benefits and medical care is $350 billion. If the number of 
unique troops increases by another 200,000 to 500,000 over a period of 
years, this number may rise to as high as nearly $700 bn. (See Table 5) 
The funding needs for veterans' benefits thus comprise an additional 
major entitlement program along with Medicare and Social Security that 
will need to be financed through borrowing if the U.S. remains in 
deficit. This will in turn place further pressure on all discretionary 
spending including that for additional veterans' medical care.

                            Table 5: Total Veterans Disability and Medical Costs \51\
----------------------------------------------------------------------------------------------------------------
                                                           LOW                MODERATE               HIGH
----------------------------------------------------------------------------------------------------------------
Disability                                                       67.6                109.5                126.8
----------------------------------------------------------------------------------------------------------------
Medical                                                         282.2                315.2                536.0
----------------------------------------------------------------------------------------------------------------
TOTAL ($Bn)                                                     349.8                424.7                662.8
----------------------------------------------------------------------------------------------------------------

In the context of the overall costs of the War
---------------------------------------------------------------------------
    \51\ Total lifetime costs over 40 years, discounted at 4.75% under 
scenarios described.
---------------------------------------------------------------------------
    Veteran's disability benefits and medical care are two of the most 
significant long-term costs of the War. As shown in our previous 
analysis of the costs of the war, the war has both budgetary and 
economic costs. This paper focuses only on the budgetary costs of 
caring for veterans. It does not take into account the value of lives 
lost, or effectively lost due to grievous injury. Not does it take into 
account the economic impact of the large number of veterans living with 
disabilities who cannot engage in full economic activities.\52\
---------------------------------------------------------------------------
    \52\ This paper considers only the budgetary costs of veterans 
care. Standard economic theory would treat disability benefits as a 
transfer payment and deduct these from the economic and social loss 
associated with veteran's reduced economic lives. This was the 
methodology used in (stiglitz paper).
---------------------------------------------------------------------------

Recommendations

a) Medical Care

    The Veterans Health Administration will not be able sustain its 
high quality of care without greater funding and increased capacity in 
areas such as psychiatric care and brain trauma units. In addition, 
more funding should be provided for readjustment counseling services by 
social workers at the Vet Centers. Even doubling the amount of funding 
for counseling at the Vet Centers is a small amount compared to the 
funds now being requested for additional recruiting of new soldiers.

(b) Disability Claims Backlog

    There are at least three potential methods of reducing the number 
of pending claims. Perhaps the easiest would be to ``fast track'' 
returning Iraq and Afghan war veteran's claims in a single center 
staffed with highly experienced group of adjudicators who could provide 
most veterans with a decision within 90 days. At a minimum, all simple 
claims could be dispatched in this manner. During the past decade, 
private sector health insurance companies have reengineered their 
processes and adopted technologies, such as new automated data capture 
and document processing systems that have dramatically improved their 
ability to handle large volumes of information. This has allowed the 
industry to bring the average claim processing time down to 89.5 days. 
For example, the firm Noridian used technology to enable operators to 
process four to five times more claims in the same amount of time as 
under their old system, and to speed the form retrieval process for 
better customer service.\53\
---------------------------------------------------------------------------
    \53\ KM World, June 1999.
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    The VA has proposed a more typically governmental solution of 
adding 1,000 more claims adjudicators. Even apart from the cost of $80 
m or so of adding these personnel, the question is whether adding 
additional personnel to a cumbersome system is the best possible way to 
speed up transactions and improve service. A better idea would be to 
expand the Vet Centers to offer some assistance in helping veterans 
figure out their disability claims. The 1,000 claims experts could be 
placed inside the Vet Centers (5 per center), thus enabling veterans 
and their families to obtain quick assistance for many routine claims. 
Vet Centers would only require minor modifications (secure storage 
space, additional computers and offices) to fill this role.
    The best solution might be to simplify the process--by adopting 
something closer to the way the IRS deals with tax returns. The VBA 
could simply approve all veterans' claims as they are filed--at least 
to a certain minimum level--and then audit a sample of them to weed out 
and deter fraudulent claims. At present, nearly 90 percent of claims 
are approved. VBA claims specialists could then be redeployed to assist 
veterans in making claims, especially at VA's ``Vet Centers.'' This 
startlingly easy switch would ensure that the U.S. no longer leaves 
disabled veterans to fend for themselves.
    The cost of any solution that reduced the backlog of claims is 
likely to be an increased number of claims, and a quicker pay-out. If 
88% of claims were paid within 90 days instead of the 6 months to 2 
years currently required, the additional budgetary cost is likely to be 
in the range of $500m in 2007.
Conclusions
    President Bush is now asking for more money to spend on recruiting 
in order to boost the size of the Army and deploy more troops to Iraq. 
But what about taking care of those same soldiers when they return home 
as veterans? The number of veterans who are returning home with 
injuries or disabilities is large and growing. We have not paid careful 
enough attention, or devoted sufficient resources, to planning for how 
to take care of these men and women who have served the nation.
    There has been a tendency in the media to focus on the number of 
U.S. deaths in Iraq, rather than the volume of wounded, injured, or 
sick. This may have led the public to underestimate the deadliness and 
long-term impact of the war on civilian society and the government's 
pocketbook. Were it not for modern medical advances and better body 
armor, we would have suffered even more loss of life.
    One of the first votes facing the new Democratic-controlled 
Congress will be yet another ``supplemental'' budget request for $100+ 
billion to keep the war going. The last Congress approved a dozen such 
requests with barely a peep, afraid of ``not supporting our troops''. 
If the new Congress really wants to support our troops, it should start 
by spending a few more pennies on the ones who have already fought and 
come home.
Limitations of Data
    This paper has been prepared based on the best available data from 
VA sources, CBO, GAO, and veterans organizations. Reconciling this data 
has therefore been done to try to generate realistic estimates, but is 
not precise. It is also difficult to predict with certainty the uptake 
in the military of benefits and medical care. In all cases this study 
has been done conservatively, for example it is entirely possible that 
after the length and grueling nature of this war, that a much higher 
number--perhaps \2/3\ of returning veterans--would seek disability 
benefits and/or healthcare and the estimates in this paper prove too 
low.
Issues not addressed
    This paper has not attempted to address the cost of taking care of 
wounded and disabled Iraqi soldiers in Iraq. A number of studies have 
estimated the fatalities in Iraq, but there are few studies of the 
number of injuries among the Iraqi military. As the U.S. continues to 
place an emphasis on developing the Iraqi military to replace it, it is 
worth asking what the cost to that country will be of providing medical 
care and any kind of long-term benefits to those who are fighting. This 
study excludes VBA benefits such as education, insurance, vocational 
rehabilitation, and home loan guaranty programs. This study also 
excludes private, state, and local healthcare, disability, and 
employment benefits for returning veterans.
Acknowledgements
    This paper was prepared with the invaluable assistance of Tony 
Park, a student at the Kennedy School of Government, and Paul Sullivan, 
Director of Research and Analysis at Veterans for America. Their 
contributions are gratefully acknowledged.