Veterans' Benefits: Basing Survivors' Compensation on Veterans'
Disability Is a Viable Option (Chapter Report, 03/06/95, GAO/HEHS-95-30).

Pursuant to a congressional request, GAO provided information on the
Department of Veterans Affairs' (VA) Dependency and Indemnity
Compensation (DIC) Program which provides income and benefits to
surviving spouses of servicemembers who died or were disabled on active
duty, focusing on: (1) the total amount of program benefits DIC
recipients received in 1993; (2) the financial impact on surviving
spouses when severely disabled veterans die; and (3) alternative ways to
set DIC benefits.

GAO found that: (1) in 1993, the minimum DIC benefit equaled about 55
percent of the estimated median income of DIC recipients; (2) in 1993,
surviving spouses received an average of $9,846 in DIC benefits; (3)
spouses of deceased and disabled veterans often receive other benefits,
including Social Security and DOD survivor benefits, but they receive
significantly less VA support when severely disabled veterans die; (4)
surviving spouses of disabled veterans receive about 50 percent less
than their spouses' basic disability compensation; (5) although some
veterans receive supplemental payments in addition to basic compensation
because of multiple or severe disabilities, the reduction in DIC
benefits for surviving spouses can be as much as 80 percent; (6) most of
the alternative methods of setting DIC benefits would likely reduce
benefits to all recipients or substantially increase federal outlays;
(7) basing DIC benefits on the level of veterans' basic disability
compensation would increase benefits for about two-thirds of DIC
recipients without increasing program costs and ensure that VA support
to spouses changes more proportionately when veterans die; and (8)
Congress will need to make a policy decision if it intends to change the
DIC payment structure.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-95-30
     TITLE:  Veterans' Benefits: Basing Survivors' Compensation on 
             Veterans' Disability Is a Viable Option
      DATE:  03/06/95
   SUBJECT:  Veterans benefits
             Veterans disability compensation
             Military disability retirement pay
             Veterans pensions
             Statistical methods
             Military dependents
             Widowed persons
             Employee survivors benefits
IDENTIFIER:  VA Dependency and Indemnity Compensation Program
             Census Bureau Current Population Survey
             Old Age Survivors and Disability Insurance Program
             Survivor Benefit Plan
             VA Servicemen's Group Life Insurance Program
             VA Veterans Group Life Insurance Program
             CHAMPUS
             Civilian Health and Medical Program of the Uniformed 
             Services
             Civilian Health and Medical Program of the Department of 
             Veterans Affairs
             DOD Voluntary Separation Incentive Program
             OASDI
             
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Cover
================================================================ COVER


Report to Congressional Committees

March 1995

VETERANS' BENEFITS - BASING
SURVIVORS' COMPENSATION ON
VETERANS' DISABILITY IS A VIABLE
OPTION

GAO/HEHS-95-30

Survivors' Benefits


Abbreviations
=============================================================== ABBREV

  BEA - Budget Enforcement Act
  CHAMPUS - Civilian Health and Medical Program of the Uniformed
     Services
  CHAMPVA - Civilian Health and Medical Program of the Department of
     Veterans Affairs
  COLA - cost-of-living adjustment
  CPS - Current Population Survey
  DIC - Dependency and Indemnity Compensation
  DOD - Department of Defense
  PAYGO - pay-as-you-go
  SBP - Survivor Benefit Plan
  SGLI - Servicemen's Group Life Insurance
  SSA - Social Security Administration
  VA - Department of Veterans Affairs
  VGLI - Veterans' Group Life Insurance

Letter
=============================================================== LETTER


B-259214

March 6, 1995

The Honorable Alan K.  Simpson
Chairman
Committee on Veterans' Affairs
United States Senate

The Honorable John D.  Rockefeller
Ranking Minority Member
Committee on Veterans' Affairs
United States Senate

The Honorable Bob Stump
Chairman
Committee on Veterans' Affairs
House of Representatives

The Honorable G.  V.  (Sonny) Montgomery
Ranking Minority Member
Committee on Veterans' Affairs
House of Representatives

This report provides information on the income and benefits received
by surviving spouses of servicemembers who died on active duty and
the surviving spouses of certain disabled veterans.  It also assesses
alternative ways of determining these spouses' benefits under the
Department of Veterans Affairs' Dependency and Indemnity Compensation
program.  The report was requested by the Congress in the Veterans'
Benefits Act of 1992. 

This report was prepared under the direction of Ruth Ann Heck,
Assistant Director, Federal Health Care Delivery Issues, who may be
reached at (202) 512-7007 if you have any questions concerning the
report.  Other major contributors are listed in appendix IV. 

David P.  Baine
Director, Federal Health Care
 Delivery Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

In 1993, the Department of Veterans Affairs' (VA) Dependency and
Indemnity Compensation (DIC) program paid benefits totaling $2.7
billion to about 276,000 surviving spouses of servicemembers who died
on active duty and surviving spouses of certain disabled veterans. 
These benefits were paid under the Veterans' Benefits Act of 1992,
which changed the basis for DIC benefits from the military rank of
the deceased servicemember or veteran to a flat rate for all
surviving spouses. 

In enacting this legislation, the Congress expressed continued
interest in the adequacy of support surviving spouses receive and
asked GAO to study and report on DIC benefits.  In response, GAO,
among other things, (1) estimated DIC recipients' total income and
determined the kinds and amounts of benefits received from other
programs, (2) determined the financial impact on surviving spouses of
the deaths of totally disabled veterans and of veterans who had been
receiving supplemental payments because they had multiple severe
disabilities and were unable to care for themselves, and (3) assessed
alternative ways to set DIC benefits. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

The DIC program's objectives are (1) to partially compensate
survivors for income lost as a result of the deaths of servicemembers
or of veterans who died because of service-connected disabilities and
(2) to indemnify the survivors for a life lost as a result of service
to the country.  For most surviving spouses, the flat rate benefit in
1994 was $9,228 annually.  However, survivors of veterans who had
been 100-percent disabled for 8 or more years received a supplemental
benefit of $2,028 annually.  Those surviving spouses who were
receiving higher benefits when the flat rate took effect continue to
receive benefits at the higher levels. 

In determining DIC recipients' income and other benefits, GAO used
several data sources, including the Bureau of the Census' Current
Population Survey and automated benefit files from VA, the Department
of Defense (DOD), and the Social Security Administration (SSA).  GAO
used actuarial projections in developing cost estimates for the
alternatives it assessed:  (1) limiting the period of entitlement to
benefits, (2) replacing monthly payments with a lump sum, (3) funding
benefits through reductions in veterans' disability compensation, and
(4) using a percentage of veterans' disability compensation to set
the amount of benefits. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

In 1993, DIC recipients had an estimated median income of $16,495. 
The minimum DIC benefit equaled about 55 percent of that income.  The
spouses often received other benefits; chief among them, Social
Security (received by 61 percent) and DOD survivor benefits (received
by 6 percent). 

When severely disabled veterans die, their spouses receive
significantly less VA support.  Veterans who are 100-percent disabled
receive basic disability compensation of about $21,000 annually;
their surviving spouses receive about 50 percent less.  In addition
to basic compensation, some veterans receive supplemental payments
because they have multiple severe disabilities or are unable to care
for themselves.  For the surviving spouses of these veterans, the
reduction in support is more dramatic; DIC benefits can be as much as
80 percent less than the annual support the veterans received from
VA. 

Most of the alternatives GAO assessed have substantial drawbacks in
that they would dramatically reduce benefits to all recipients or
substantially increase federal outlays.  However, one
alternative--basing DIC benefits on the level of veterans' basic
disability compensation--would, without increasing program costs,
increase benefits for about two-thirds of recipients while decreasing
them for about one-third.  This alternative would also ensure that
when veterans die, VA support to their spouses changes more
proportionately.  Currently, support to the spouses of the most
severely disabled is reduced the most while support to the spouses of
the least disabled may increase as much as ninefold. 


   GAO'S ANALYSIS
---------------------------------------------------------- Chapter 0:4


      DIC BENEFITS ARE A
      SIGNIFICANT PART OF
      SURVIVING SPOUSES' INCOMES
-------------------------------------------------------- Chapter 0:4.1

Surviving spouses had an estimated median total income from all
sources of $16,495 in 1993.  This income was more than double the
federal poverty level of $7,363 for a single person with no
dependents.  While the total incomes of about 20 percent of these
spouses were below the federal poverty level, twice as many would
have been below that level if they had not received DIC benefits. 

During 1993, surviving spouses received an average of $9,846 in DIC
benefits.  Sixty-one percent of these survivors also received an
average of $6,405 in Social Security benefits.  About 6 percent
received an average of $6,326 under DOD's Survivor Benefit Plan,
which provides benefits to survivors of military personnel who die in
retirement, or after becoming eligible for retirement, and had
elected survivors' coverage. 

Many DIC recipients are eligible for other benefits, including death
gratuities (immediate cash payments) from DOD and SSA, burial
benefits from VA, monthly cash benefits for education or training,
and medical benefits from VA or DOD. 


      BENEFITS DECLINE SHARPLY FOR
      SPOUSES OF THE SEVERELY
      DISABLED
-------------------------------------------------------- Chapter 0:4.2

Almost 70 percent of the surviving spouses who become eligible for
DIC benefits were married to veterans who were receiving VA
compensation at the basic 100-percent disability rate--which in 1994
was $21,288 annually.  Upon the veterans' deaths, most spouses
receive DIC benefits of less than half that amount. 

The basic disability compensation is intended to replace veterans'
income lost because of disabilities.  In addition, totally disabled
veterans who have multiple severe disabilities and are unable to care
for themselves receive supplemental payments intended to defray their
costs of care.  These additional payments can increase their total
benefits to over $60,000 annually.  About 4 percent of DIC recipients
had been married to such veterans.  These spouses can receive maximum
DIC benefits of $11,256, less than 20 percent of the compensation the
veterans had been receiving. 


      BASING DIC BENEFITS ON
      VETERANS' DISABILITY
      COMPENSATION WOULD REDUCE
      DISPARITIES IN LOST VA
      SUPPORT
-------------------------------------------------------- Chapter 0:4.3

Compared with the current DIC program and the other three
alternatives GAO studied, basing payments on the extent of veterans'
basic disability compensation (excluding supplemental payments) would
have several advantages.  All spouses would experience the same
proportional change relative to the basic disability compensation
that the veterans had been receiving prior to death.  Benefits would
be related to the VA support paid to the veterans but lost by their
families upon the veterans' deaths.  In contrast, under the current
program about 26 percent of surviving spouses receive more DIC
benefits than the basic disability compensation the veterans had been
receiving.  For example, those who were married to veterans who were
10-percent disabled receive $8,184 more annually than the $1,044 in
disability compensation the veterans had been receiving. 

Under this alternative, DIC survivors' benefits would be 61 percent
of veterans' disability compensation--without increasing program
costs.  Benefits to survivors of the most severely disabled veterans
would increase.  The 69 percent of DIC recipients who survive
veterans who were compensated at the 100-percent disability rate
would have their annual payments increase to $12,986--or by as much
as $3,758.  Because this alternative focuses the program on the goal
of replacing lost support rather than the goal of indemnification,
the minimum benefit would be substantially reduced.  The spouses of
veterans rated less than 100-percent disabled would receive from
$1,418 to $8,591 less per year. 

Changing the DIC payment structure will require a policy decision by
the Congress.  If it believes that ensuring that all DIC recipients
experience a more proportional change in VA support is more important
than ensuring that all spouses receive the same benefit, the Congress
should pay survivor benefits as a percentage of the disability
compensation veterans received prior to their deaths. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:5

The Assistant Secretary of Defense, Force Management Policy,
generally concurred with the report.  (See app.  II.)

The Secretary of Veterans Affairs noted that the report described the
impact of the 1992 changes to the DIC program in a credible and
competent manner, but that it did not raise issues sufficient to
warrant revising the program at this time.  The Secretary pointed out
that basing DIC benefits on veterans' disability compensation
payments alone fails to recognize that the Congress envisioned
partial replacement of other sources of support besides disability
compensation, such as veterans' lifetime earnings.  However, GAO
could find no basis for VA's belief that the Congress ever linked DIC
benefits to the total support lost by individuals.  The practical
effect of this alternative is to change the proportion of total lost
support that the DIC program replaces. 

The Secretary was also concerned that basing survivor benefits on
disability compensation would cause inequities, principally because
survivors of veterans who die from less severe service-connected
disabilities would receive less than survivors of veterans who die
from more severe disabilities.  GAO believes that any survivor
program that determines benefit levels on a basis other than
individual economic circumstances, including the current flat rate
program, will result in some inequities.  In contrast to the current
program, however, the alternative that bases survivors' benefits on
veterans' compensation decreases benefits for those married to less
disabled veterans and increases benefits to those married to the most
severely disabled veterans.  Surviving spouses of the most severely
disabled veterans constitute almost 70 percent of future
beneficiaries.  (See app.  III.)


INTRODUCTION
============================================================ Chapter 1

The federal government has provided benefits to the surviving spouses
of servicemembers and veterans through a variety of programs since
the Revolutionary War period.  The Department of Veterans Affairs
(VA), under the Dependency and Indemnity Compensation (DIC) program,
pays monthly benefits to surviving spouses\1 of (1) servicemembers
who die while on active duty, (2) veterans who die as a result of
service-connected disabilities, and (3) other veterans who had been
totally disabled for at least 10 years or for at least 5 years from
the date of discharge from military service.  These benefits are
intended to partially compensate survivors for income lost as a
result of the deaths of servicemembers or veterans from
service-connected disabilities and to indemnify survivors for lives
lost as a result of service to the country.  In 1993, VA paid DIC
benefits totaling $2.7 billion to about 276,000 surviving spouses. 

To be eligible for benefits, surviving spouses in general must have
been married at least 1 year and must have lived continuously with
the veterans up to the date of the veterans' deaths.  The benefits
are not needs-tested or subject to federal or state income taxes. 
Also, the benefits are provided for the lifetimes of the surviving
spouses or until they remarry.  During several periods in the past,
and as recently as 1990, if a remarriage ended because of the death
of the new spouse or divorce, the veteran's survivor could again
receive DIC benefits.  As part of the Omnibus Budget Reconciliation
Act of 1990, however, the Congress prohibited reinstatement of
benefits to surviving spouses who remarried. 

Over the years, the Congress has used various bases for determining
the amount of compensation for surviving spouses, including (1) the
veterans' military ranks, (2) the extent of their disability, (3) the
spouses' ages, (4) a flat rate for all, and (5) combinations of these
factors.  When it established the DIC program, which took effect in
1957, the Congress provided surviving spouses with a flat rate
payment supplemented by 12 percent of the veterans' basic military
pay adjusted for military pay increases.  In 1969, the Congress
amended the law to base DIC benefits solely on the deceased's
military pay grade.  In 1992, these benefits ranged from $7,392
annually for surviving spouses of the lowest ranking servicemembers
to $18,960 for those of the highest ranking.  At the end of 1992,
about 81 percent of DIC recipients were surviving spouses of enlisted
personnel (see fig 1.1). 

   Figure 1.1:  Most DIC
   Recipients Had Been Married to
   Enlisted Personnel

   (See figure in printed
   edition.)

When it enacted the Veterans' Benefits Act of 1992 (P.L.  102-568),
the Congress changed the basis of the benefits from that of the
servicemember's or veteran's rank to that of a flat monthly payment. 
The House report on the legislation noted that the flat rate was
adopted in an attempt to establish parity among all surviving spouses
under the program.  DIC recipients who were spouses of veterans who
died after December 31, 1992, receive a flat rate, which in 1994 was
$9,228 annually.\2 If the veteran was rated totally disabled for at
least 8 years immediately prior to death, the spouse receives a
$2,028 annual supplement.  In addition, disabled surviving spouses
receive supplements of $2,340 if they require the aid and attendance
of another person, or $1,140 if housebound, but not in need of aid
and attendance. 


--------------------
\1 While our review focused on surviving spouses, children and
parents of deceased servicemembers and veterans may also be eligible
for benefits.  Children must be under age 18, permanently disabled
before reaching age 18, or students under age 23.  Surviving parents
must be needy and are not eligible if their incomes exceed certain
statutory limits. 

\2 Those who were spouses of veterans who died prior to January 1,
1993, receive the greater of the flat rate or the amount they were
receiving prior to that date.  Consequently, some spouses currently
receive over $19,600 annually. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:1

The Veterans' Benefits Act of 1992 required us to study and report on
veterans' survivor benefit programs.  We agreed with the House and
Senate Veterans' Affairs Committees to focus on the DIC program and
to do the following: 

Estimate DIC recipients' total income and determine the kinds and
amounts of benefits they receive from other VA programs and from
programs operated by the Department of Defense (DOD) and the Social
Security Administration (SSA). 

Determine the likely impact on surviving spouses and federal costs of
allowing DIC benefits to be reinstated if remarriages end. 

Determine the financial impact on surviving spouses of the deaths of
catastrophically disabled veterans. 

Assess alternative ways of determining DIC benefits.  We assessed
four alternatives that were specified in the act or suggested by
literature discussing this and other survivor benefits programs. 

To estimate the total individual income of surviving spouses
receiving DIC benefits, we used the 1993 income reported in the 1994
Current Population Survey (CPS) conducted by the Bureau of the
Census.  To determine the kinds and amounts of benefits DIC
recipients may be eligible to receive from other VA programs and from
programs operated by DOD and SSA, we reviewed program literature and
legislation and interviewed agency officials.  To determine the
amounts received from SSA's Old Age and Survivors' Disability
Insurance program, automated VA files for all DIC beneficiaries were
matched with beneficiary files maintained by SSA.  We analyzed an
automated DOD file to determine the amounts received from DOD's
Survivor Benefit Plan. 

To determine the potential impact of reinstating DIC benefits to
surviving spouses whose remarriages terminate, we estimated the
number who might request reinstatement and multiplied that number by
current benefit amounts.  To estimate the number of potential
reinstatements, we used VA records of applications for reinstatement
of benefits made shortly after enactment of the 1990 legislation that
prohibited future reinstatements.  We then estimated the first year
impact, assuming that the DIC benefits of spouses whose remarriages
terminated after the effective date of the 1990 legislation would be
reinstated, and the impact in subsequent years, assuming that
benefits would continue for the lifetimes of the beneficiaries. 

In assessing the four alternatives to VA's current DIC program, we
estimated the cost and impact on the federal budget of each
alternative and identified the relative advantages and disadvantages
for DIC recipients.  We then compared each alternative with the
current program on these bases.  Our cost estimates were based on the
present value of DIC benefits paid over a 15-year period from 1994
through 2008.  We chose this period as the minimum length of time
required to permit the long-term cost and budgetary implications of
all alternatives to become clear.  As projections are made further
into the future, the assumptions on which they are based become more
subject to uncertainty. 

In these calculations, we (1) used 1994 benefit rates because these
were the rates that were in effect when we did our work and (2)
assumed annual cost of living adjustments (COLA).  We applied the
alternatives only to newly eligible surviving spouses who would begin
entering the program in January 1994.\3 Based on VA DIC program
records for recent years, we estimated that there would be 12,000 new
entrants annually.  These new entrants would be on average 61 years
old at time of enrollment, have an estimated remaining life
expectancy of 23 years, and would be almost exclusively female. 
Relatively few would be survivors of servicemembers who died while on
active duty; most would be survivors of disabled veterans who were in
the enlisted ranks while in the military.  Using mortality experience
and remarriage rates, we assumed that each year there would be
attrition of 2.1 percent. 

For our analyses, we also assumed the following: 

Spouses who receive supplemental benefits because they have
dependents or are housebound or require aid and attendance would
continue to be paid those benefits just as they are under the current
program. 

Economic conditions would not significantly change. 

The nation would not enter into a significant armed conflict. 

The purpose of our estimates was to compare the relative value of the
various alternatives, not to precisely estimate their cost or
financial impact.  Consequently, while future events could affect our
assumptions and related expenditure estimates, we believe the
relative comparisons of the current program and the alternatives
would likely remain valid. 

We estimated the financial impact on surviving spouses of the deaths
of catastrophically disabled veterans in terms of the difference
between the disability compensation received by these veterans prior
to death and the DIC benefits currently being received by their
spouses.  This reduction in VA-provided support to the veterans'
families was a concern expressed during congressional hearings on the
Veterans' Benefits Act of 1992.  We estimated the impact for two
categories of veterans who might be considered to be catastrophically
disabled:  (1) all veterans who had been 100-percent disabled and (2)
those who had been 100-percent disabled and had received supplemental
benefits for aid and attendance because they were unable to care for
themselves.\4

Because the DIC record in VA's automated compensation and pension
payment files does not contain information showing the disability
level of deceased veterans, we (1) used the 1993 DIC record to
identify those veterans who died in 1991 or 1992 and (2) matched
these veterans to the veteran records in VA's disability compensation
payment files for 1990.  We could not obtain this information for all
current recipients because, in many cases, the veterans died many
years ago and compensation files are not readily available.  In
addition to using this information to determine the impact on
surviving spouses of the deaths of catastrophically disabled
veterans, we used it in our analyses of alternatives to the current
program. 

We discussed the alternatives and issues involved in our study with
VA and DOD officials, the Congressional Research Service, the
Congressional Budget Office, and representatives of veterans'
services organizations, including Disabled American Veterans,
Paralyzed Veterans of America, the Army and Air Force Mutual Aid
Association, and Gold Star Wives.  The latter two groups represent
many survivors of servicemembers and veterans. 

We did our work between November 1993 and October 1994 in accordance
with generally accepted government auditing standards.  We did not
independently verify the accuracy of the VA, DOD, or SSA databases we
used.  However, each is used extensively in day-to-day program
management, and we believe they are sufficiently reliable for the
purposes of our analyses.  (See app.  I for a more detailed
discussion of our scope and methodology.)


--------------------
\3 Our calculations apply only to these new entrants and exclude all
costs related to current recipients. 

\4 There is no generally accepted definition of "catastrophically
disabled." Participants in the hearings on the Veterans' Benefits Act
of 1992 focused on veterans who received supplemental benefits for
aid and attendance.  On the other hand, some veterans and experts
argue that any veterans who are 100-percent disabled are
catastrophically disabled.  There are many gradations in between
these two definitions. 


VA SURVIVORS' BENEFITS ARE A LARGE
PORTION OF SURVIVING SPOUSES'
INCOMES
============================================================ Chapter 2

Most DIC recipients have total incomes above the poverty level.  DIC
and other federal benefits--chiefly Social Security and DOD survivor
benefits--constitute a substantial part of their incomes.  A wide
range of additional payments and benefits, such as life insurance and
education, are available to some or all of those receiving DIC
benefits. 

DIC benefits provide support throughout the spouses' lifetimes or
until they remarry; until 1991, benefits could be reinstated if the
remarriages ended.  While the cost of allowing reinstatements would
be relatively small, under current budget rules the increase would
need to be offset by spending reductions or revenue increases. 

DIC benefits for surviving spouses of totally disabled veterans are
significantly less than the disability compensation payments the
veterans received during their lifetimes.  An estimated 69 percent of
DIC beneficiaries recently entering the program had been married to
veterans who received disability compensation payments at the
100-percent disability level.  After such veterans die, the DIC
benefits paid to their spouses are at least 47 percent less than the
veterans were receiving in disability compensation.  For some
spouses, the disparity between disability compensation and DIC
benefits is substantially greater. 


   VA DIC BENEFITS MAKE UP ABOUT
   ONE-THIRD OF SURVIVING SPOUSES'
   TOTAL INCOME
---------------------------------------------------------- Chapter 2:1

The most recent CPS data available show that the median total income
from all sources, including earnings, for surviving spouses receiving
DIC benefits was $16,495 in 1993.\5 This amount is more than two
times the federal poverty level of $7,363 for a single person with no
dependents.  As figure 2.1 shows, in 1993 total estimated income for
all but the wealthiest DIC recipients ranged from $4,248 to about
$74,800,\6 and about 20 percent of recipients had incomes below the
poverty level. 

   Figure 2.1:  More Recipients
   Would Be Below the Poverty
   Level Without DIC Benefits

   (See figure in printed
   edition.)

Note:The 100th percentile was excluded because it contained few very
high incomes. 

Source:  Bureau of the Census, Current Population Survey, March 1994. 

Further analysis of the CPS data demonstrates the importance of the
DIC benefit to some spouses.  DIC payments were, on average, about 33
percent of total income received by a DIC recipient in 1993.\7
Additionally, without DIC benefits, the number of 1993 recipients
with total income below the poverty level would increase.  As also
shown in figure 2.1, without DIC benefits about 40 percent of DIC
recipients would have had incomes below the poverty level. 

Most surviving spouses who are eligible for DIC benefits are also
eligible for Social Security benefits on the basis of their past
earnings, the earnings of the deceased veterans,\8

or both.  Surviving spouses are eligible for Social Security widows'
benefits if they are 60 years old or for mother's benefits if they
have children under age 16 in the home.  Our comparison of VA's DIC
database with that of SSA showed that, in 1993, about 61 percent of
the surviving spouses receiving DIC benefits also received Social
Security benefits; these benefits averaged $6,405 annually and ranged
as high as $25,600. 

Some surviving spouses receiving DIC benefits are also eligible for
benefits under the DOD Survivor Benefit Plan (SBP).  These benefits
are payable to survivors of military personnel who die in retirement,
or after becoming eligible for retirement, and had elected survivors'
coverage.  These benefits are reduced by the amount of DIC
payments.\9

Because SBP benefits generally increase with the rank of the
servicemember, most recipients are survivors of officers; their SBP
payments are less likely than the payments to survivors of enlisted
personnel to be totally offset by DIC benefits.  Our analysis of DOD
automated records of DIC recipients who also receive SBP payments
showed that about 6 percent of DIC recipients are in that category. 
Their payments averaged $6,326 annually and ranged as high as
$34,440. 

Family income of DIC recipients may be higher than the individual
income discussed above.  VA data show that of all spouses receiving
DIC benefits in 1993, about 5 percent had dependents.  On average,
these spouses received DIC benefits of $11,112, while those without
dependents received $9,785.  Of surviving spouses who received SSA
benefits, the average SSA benefit to those with dependents was $5,700
and to those without, $6,429.\10


--------------------
\5 At the 95-percent confidence level, the true median falls between
$11,200 and $20,183. 

\6 As noted by the Bureau of the Census, there is a tendency in
surveys such as the CPS for respondents to underreport their incomes
by both source and amount.  Reporting of income from earnings is
generally more accurate than reporting of income from other sources,
including cash and noncash transfer programs such as Social Security
and veterans' benefits.  We found, in fact, that two-thirds of the
respondents we identified as probable DIC recipients reported DIC
payments that were less than the statutory minimum, which in 1993 was
$9,000, or about 55 percent of spouses' reported income.  If DIC
payments were adjusted to the minimum level, both the estimated total
income and the portion comprised by DIC benefits would increase, and
no recipients would have total incomes below the poverty level. 

\7 At the 95-percent confidence level, we estimate that the actual
percentage is between 23 and 46 percent. 

\8 Members of the uniformed services were covered by Social Security
beginning on January 1, 1957. 

\9 DOD data show that about 10 percent of surviving spouses are
eligible for both DIC and SBP benefits.  The spouses can choose
whether to receive DIC or SBP benefits.  Most choose DIC benefits
because they may be higher than SBP benefits and are not taxable. 
They receive SBP only to the extent that the SBP benefits to which
they are entitled exceed the amount they receive from DIC. 

\10 Of newly eligible spouses, about 14 percent had dependents.  On
average, these spouses received DIC benefits of $11,410; spouses
without dependents averaged $10,019.  For new entrants receiving SSA
benefits, those benefits averaged $5,882 and $7,175 for spouses with
and spouses without dependents, respectively. 


   OTHER BENEFITS AVAILABLE TO
   SURVIVING SPOUSES
---------------------------------------------------------- Chapter 2:2

In addition to SSA and SBP benefits, many surviving spouses receiving
DIC benefits are eligible for one-time cash benefits as well as
noncash benefits under other programs, most of which are administered
by VA or DOD.\11 The principal cash benefits are summarized in table
2.1. 



               Table 2.1

   DIC Recipients Are Eligible for a
        Variety of Cash Benefits

  Estimated percentage
            Amount  fit
------------------  ---

     $9,846 (avg.)
      6,405 (avg.)
      6,326 (avg.)


   100,000/200,000
    Up to 100,000/
           200,000
             1,500
             6,000

\a As described below, the current program design is new.  Sufficient
data are not yet available to allow us to estimate the number of DIC
recipients who will be eligible. 

The one-time cash benefits and the noncash benefits are discussed
below.  Additionally, survivors of servicemembers who die on active
duty may receive additional types of benefits. 


--------------------
\11 Government-sponsored life insurance is seen by many as a part of
the total package of support available to surviving spouses and we
have included it in the list of benefits.  However, as discussed
later, in most cases veterans and servicemembers must elect the
insurance and their premiums fund most of the proceeds paid out. 


      GROUP TERM LIFE INSURANCE
-------------------------------------------------------- Chapter 2:2.1

Since December 1, 1992, spouses of servicemembers who die on active
duty may receive up to $200,000 under the Servicemen's Group Life
Insurance (SGLI) program.  Servicemembers are automatically covered
for the first $100,000 unless they decline the coverage.  They must
elect the remaining $100,000.\12 Over 99 percent of servicemembers
currently carry at least $100,000 of coverage, and over 50 percent
have elected the additional $100,000.  The current maximum is
significantly higher than the amounts historically available under
this program.  When instituted in 1965, the maximum available was
only $10,000.  It was increased to $15,000 in 1970, $20,000 in 1974,
$35,000 in 1981, $50,000 in 1986, and $100,000 in 1991. 

Surviving spouses who invest the $100,000 at 1994 interest rates
could draw an annuity equivalent to current DIC benefits for over 20
years.  Those spouses who receive $200,000 of life insurance could
invest substantially less than this amount to receive an annuity
equivalent to the DIC benefits for well over 20 years. 

Survivors of veterans would receive life insurance proceeds from the
Veterans' Group Life Insurance (VGLI) program if the veterans elected
to enroll in this program and left military service after August 1,
1974.  Veterans are eligible to enroll if they elected SGLI coverage
while in military service.  Veterans can purchase, at commercial
rates, this renewable 5-year term insurance after discharge up to the
amount of their coverage while in service.  However, until 1992 this
insurance was only available for 5 years and was not renewable; as a
result, many veterans currently are not covered.  Also, since the
maximum insurance is limited to the amount of SGLI the veteran had
while in service, the coverage for many is less than $100,000. 

Disabled veterans have been eligible for additional life insurance
coverage of up to $30,000 at commercial rates since December 1, 1992. 
Veterans who are under 65 and choose not to renew their VGLI are
eligible to convert to this insurance at the time their VGLI policy
expires.  Several plans are available (whole life and term, for
example), and premium rates depend on the type of plan selected and
the veteran's age. 

Veterans with service-connected disabilities who left the service
after April 24, 1951, and are otherwise in good health may also apply
to VA for up to $10,000 of life insurance at standard rates.  Those
who are totally disabled may obtain up to $30,000 of coverage; the
premiums on their first $10,000 of coverage may be waived. 


--------------------
\12 Premiums are 9 cents per month for each $1,000 of coverage.  This
low rate reflects the relatively healthy status of servicemembers in
peacetime.  Insurance claims above the normal peacetime level are
paid by the government. 


      EDUCATION ASSISTANCE
-------------------------------------------------------- Chapter 2:2.2

All surviving spouses who are eligible for DIC benefits are also
eligible for VA education assistance.  They may receive as much as
$404 a month for up to 45 months of full-time education or training
directed toward a definite educational or vocational goal approved by
VA.  Eligibility extends for 10 years from the date that VA
determines that a spouse is eligible.  Those who have passed the
10-year limit but have some months of entitlement remaining may, if
financially needy, borrow up to $2,500 per academic year for up to 2
years of postsecondary studies. 


      MEDICAL CARE
-------------------------------------------------------- Chapter 2:2.3

All DIC recipients are eligible for medical care through DOD or VA
programs.  Surviving spouses who are survivors of deceased active
duty and retired servicemembers may receive medical care at military
health facilities when space is available.  When space is not
available, these survivors may receive care from civilian sources
under the Civilian Health and Medical Program of the Uniformed
Services (CHAMPUS).  CHAMPUS pays for such care subject to copayments
and deductibles, which vary according to the type of care received. 

Other DIC recipients can receive care under the Civilian Health and
Medical Program of the Department of Veterans Affairs (CHAMPVA).  VA
pays for medical care to the surviving spouses of veterans who had
service-connected disabilities if they are not eligible for CHAMPUS
or Medicare.  The spouses may receive medical care in VA facilities
when space is available.  Most often, they receive care from civilian
sources, with VA paying a portion of the cost and the recipient
paying any required copayment. 


      BURIAL BENEFITS
-------------------------------------------------------- Chapter 2:2.4

Generally, servicemembers who die while on active duty and veterans
are eligible for burial benefits, including burial in national
cemeteries, a VA headstone or grave marker, and a presidential
memorial certificate.  In addition, when a veteran dies as a result
of a service-connected disability, VA will pay a burial allowance of
$1,500 as well as the cost of transporting the veteran's remains to a
national cemetery.  The military reimburses up to $4,850 of burial
expenses depending on approved arrangements. 


      SHOPPING PRIVILEGES
-------------------------------------------------------- Chapter 2:2.5

Many surviving spouses have shopping privileges at military
commissaries and exchanges.  Those eligible surviving spouses include
those of servicemembers who died while on active duty, 100-percent
service-connected disabled veterans, military retirees, and
servicemembers involuntarily discharged from the military as a result
of downsizing efforts.  Eligible surviving spouses are able to
purchase subsistence items, merchandise, and services at estimated
cost savings of 20 to 25 percent compared with commercial retail
prices. 


      DEATH GRATUITY
-------------------------------------------------------- Chapter 2:2.6

DOD provides a death gratuity in the form of an immediate cash
payment of $6,000 to survivors of servicemembers who die on active
duty or within 120 days of separation if the death was
service-connected.  Most surviving spouses would also receive a $255
SSA death gratuity.  This benefit is paid if the veteran had
employment covered by Social Security and the spouse was either
living with the veteran at the time of death or is eligible for
monthly Social Security dependents' benefits. 


      HOUSING ASSISTANCE
-------------------------------------------------------- Chapter 2:2.7

All surviving spouses eligible for DIC benefits may receive housing
assistance from VA or DOD.  VA provides housing loan guarantees to
veterans' surviving spouses.  VA will guarantee 50 percent of amounts
up to $45,000, the greater of $22,500 or 40 percent of amounts over
$45,000 up to $144,000, and 25 percent of loans over $144,000; the
maximum guarantee is $46,000.  In addition, DOD will continue to pay
housing allowances, which on average partially offset civilian
housing costs when government quarters are unavailable, to surviving
spouses of active duty personnel for up to 180 days after the
servicemembers' deaths. 


      ADDITIONAL BENEFITS FOR
      SURVIVORS OF SERVICEMEMBERS
      WHO DIE ON ACTIVE DUTY
-------------------------------------------------------- Chapter 2:2.8

Survivors of servicemembers who die on active duty may receive
additional monetary benefits or reimbursements. 

Accrued leave:  DOD pays these surviving spouses the amount due the
servicemembers for accrued leave.  The payment is generally limited
to 60 days of leave. 

Tax forgiveness:  The current federal income taxes of any
servicemember who dies while serving in a combat zone are forgiven. 
Also, any such taxes for prior years that are unpaid at the time of
death are forgiven, including interest and additional amounts. 

Unpaid separation incentive:  DOD continues to pay to surviving
spouses the remaining unpaid payments of veterans who participate in
the Voluntary Separation Incentive Program.  Under this program,
which is part of the military's downsizing effort, qualified
servicemembers with at least 6 years of active service who separate
from military service before they are eligible for retirement receive
an annual amount equal to 2.5 percent of annual basic pay times the
number of years of service.  These payments continue for twice the
veterans' length of service. 


   REINSTATING DIC BENEFITS TO
   SPOUSES WHOSE REMARRIAGES
   TERMINATE WOULD INCREASE
   PROGRAM COSTS BY ABOUT 2
   PERCENT
---------------------------------------------------------- Chapter 2:3

We estimate that about 1,200 beneficiaries leave the DIC rolls
annually as a result of remarriage.  Prior to 1991, DIC benefits were
reinstated if these subsequent marriages ended.  Using VA data on
applications for reinstatement of benefits in 1991, we estimate that,
at current payment levels, reinstating spouses whose remarriages
subsequently end would increase program costs by about $43 million,
about 2 percent of program costs, in the first year.  This first-year
cost includes estimated payments to beneficiaries who would have
applied for reinstatement during the years since 1991 when
reinstatement was prohibited.  The increased cost in the second year
would be about $12 million more, or $55 million, and increased costs
resulting from this change would continue to rise by an estimated
additional $12 million annually as more spouses are reinstated.  The
DIC program is classified as a mandatory spending program under the
Budget Enforcement Act (BEA) and subject to pay-as-you-go (PAYGO)
rules.  Therefore, any increased spending from expanding DIC benefits
would need to be offset by reduced spending or increased revenues in
other PAYGO-controlled legislation.\13

Data were not available to allow us to determine the financial impact
on these surviving spouses of being reinstated.  We could not, for
example, determine their total income, including any survivor
benefits they may receive from the second marriage.  Several
officials from organizations that represent veterans' widows have
pointed to other possible impacts, however.  According to these
officials, many spouses believe the current provision is unfair when
compared with other federal programs, including Civil Service
Retirement, Social Security, and Railroad Retirement, which reinstate
the benefits of spouses whose subsequent remarriages terminate.  Many
also view the enactment of the provision as a breach of faith because
it was applied not only to future remarriages but also to those who
had already left the rolls because of remarriage. 

Furthermore, though they could provide no estimates of the frequency,
these officials said that many widows are choosing not to remarry,
rather than lose the security of having their DIC benefits to fall
back on if the new marriages do not last.  To the extent this is
occurring, VA is paying benefits to widows who, in the absence of
this provision, would remarry and no longer receive benefits.  If
allowing reinstatements resulted in increased remarriages, the net
cost of allowing reinstatements would be lower than we estimated. 


--------------------
\13 Other potential changes in DIC benefits analyzed in this report
would also be subject to PAYGO.  This is because BEA placed mandatory
spending and revenue legislation into a single PAYGO-controlled
category and required that legislation in this category be
deficit-neutral.  This means that any policy expansions of existing
mandatory programs or any tax cut requires offsetting revenue
increases or spending reductions in other PAYGO-controlled
legislation affecting aggregate deficit changes for 2 fiscal years. 
The Office of Management and Budget keeps a PAYGO spending scorecard,
and deficit neutrality can be enforced through sequestration.  For a
more detailed discussion, see chapter 1 in Budget Policy:  Issues in
Capping Mandatory Spending (GAO/AIMD-94-155, July 18, 1994). 


   SPOUSES OF THE MOST SEVERELY
   DISABLED VETERANS LOSE THE MOST
   VA BENEFITS UPON THE VETERANS'
   DEATHS
---------------------------------------------------------- Chapter 2:4

As shown in figure 2.2, an estimated 69 percent of the 12,000
surviving spouses who become eligible for DIC benefits each year had
been married to veterans who received VA disability compensation at
the 100-percent disability rate.\14

   Figure 2.2:  Most DIC
   Recipients Had Been Married to
   Veterans Who Received
   Compensation at the 100-Percent
   Disability Rate

   (See figure in printed
   edition.)

In 1994, veterans at the 100-percent disability level received
compensation payments of at least $21,288 annually.  Upon these
veterans' deaths, eligible spouses would receive DIC benefits of
$9,228 annually, or $11,256 if the veterans had been receiving
benefits at the 100-percent level for at least 8 years.  Thus, at a
minimum, DIC benefits to surviving spouses are $10,032 less than the
disability compensation the veterans had been receiving prior to
death. 

In contrast, benefits to spouses of less severely disabled veterans
are dramatically higher than the veterans' compensation.  For
example, the 1994 minimum DIC benefit of $9,228 annually is almost
nine times the $1,044 disability compensation received by veterans
who were 10-percent disabled (see fig.  2.3). 

   Figure 2.3:  Spouses of the
   Most Severely Disabled
   Experience the Greatest Decline
   in Support

   (See figure in printed
   edition.)

About 4 percent of new entrants had been married to totally disabled
veterans whose disabilities were so severe that they were unable to
care for themselves.  These veterans had been receiving supplemental
payments to compensate for multiple severe disabilities and for aid
and attendance that when combined with their disability compensation,
totaled as much as $60,852 in 1994.  After they died, their spouses
received about $50,000 less than the veterans had been receiving.\15

According to officials of some veterans' organizations, many spouses
of veterans who are unable to care for themselves choose to forgo
employment and career opportunities to stay at home and care for the
veterans.  These officials argue that because many of these spouses
are elderly when the veterans die, they may have difficulty obtaining
employment at that point in their lives.  Therefore, the officials
believe that these surviving spouses should be provided with
supplemental benefits to help reduce the financial impact of the
veterans' death.  Others do not see the need for added benefits. 
Officials of VA and another veterans' organization noted that spouses
have the option of using the aid and attendance payments to purchase
care for the veterans, thus enabling the spouses to pursue employment
opportunities. 


--------------------
\14 About 43 percent of these veterans had disability ratings less
than 100 percent, but because VA had determined them to be
unemployable, they received payments equivalent to the 100-percent
rate. 

\15 Many more spouses were married to veterans who were receiving
supplemental payments for multiple disabilities but did not need aid
and attendance. 


SOME ALTERNATIVES WOULD
SUBSTANTIALLY REDUCE BENEFITS OR
BE TOO COSTLY
============================================================ Chapter 3

The three alternative approaches to computing DIC survivors' benefits
that were contained in the Veterans' Benefits Act of 1992 would
either substantially increase federal outlays, at least in the early
years, or would dramatically limit benefits.  The legislation
suggested three types of alternatives: 

limiting the period of entitlement to benefits,

replacing monthly payments with a one-time lump sum payment, and

funding DIC benefits with premiums paid by the veterans through
reductions in veterans' disability compensation. 


   LIMITING BENEFIT PERIODS WOULD
   REDUCE VA COSTS AND
   BENEFICIARIES' INCOME
---------------------------------------------------------- Chapter 3:1

Under the alternative limiting the period of entitlement, DIC
benefits would be terminated after some specified number of years,
rather than continuing over the lifetimes of the spouses.  We
examined two options under this alternative, limiting benefits to
periods of 5 and 10 years.  As shown in figure 3.1, we calculated
that, for future entrants, the present value of the estimated total
payments under the current program would be $8,655 million over a
15-year period, compared with $5,187 million if benefits were paid to
surviving spouses for 5 years and $7,826 million if they were paid
for 10 years.  Thus, the present value of federal payments over 15
years would be reduced by $3,468 million under the 5-year option and
by $829 million under the 10-year option. 

   Figure 3.1:  Limiting DIC
   Payment Periods Would Reduce
   Federal Outlays

   (See figure in printed
   edition.)

The most obvious advantage of this alternative is that federal
outlays would be reduced.  Assuming that current payment levels
remained unchanged other than for COLAs, program costs would begin to
decline significantly after the end of either entitlement period. 
This alternative would also offer some minimal administrative
advantages.  VA would have fewer benefit checks to process. 
Furthermore, because the relationship between VA and surviving
spouses would last for a shorter period than it does under the
existing program, VA would have to handle fewer administrative
matters, such as changes of address. 

However, this alternative would substantially reduce the incomes of
many surviving spouses after the payment period ends.  It changes the
character of the DIC program from one providing partial lifetime
support to one providing transitional assistance.  Thus, the program
would provide financial support for a limited time to enable
surviving spouses to make a transition to new circumstances.  Younger
surviving spouses may be more likely to develop new means of support
through employment or to remarry.  Older beneficiaries, in contrast,
may be less likely to do so. 

On average, recent entrants to the DIC program were 61 years old, and
only 11 percent were younger than 40.  Limiting the period of
entitlement of older spouses would leave them dependent on other
means of support for the remainder of their lives, which on average
would be 18 and 14 years under the 5- and 10-year limits,
respectively.  Given that DIC benefits constitute, on average, about
one-third of surviving spouses' total incomes, the incomes for many
of these spouses could be substantially reduced by the termination of
these benefits. 

In addition, savings to the federal government may be less than
indicated in the figure.  Currently, most surviving spouses who are
also eligible for SBP choose to receive DIC benefits because they may
be higher than SBP payments and are not taxed.  DOD data indicate
that about 10 percent of current DIC recipients are eligible for SBP
benefits, but do not receive full benefits because of the DIC offset. 
Reductions in DIC benefits would cause increases in SBP payments to
these recipients, which would reduce estimated savings to the federal
government.  The reduction in savings would be partially offset,
however, by revenues from taxes paid on SBP benefits. 


   TWO LUMP SUM PAYMENT
   ALTERNATIVES ANALYZED
---------------------------------------------------------- Chapter 3:2

Of the alternatives assessed, the greatest short-term impact on the
federal budget would be from a lump sum alternative.  This
alternative would provide a one-time payment to surviving spouses
rather than monthly payments over their lifetimes.  Under this
alternative as we analyzed it, all surviving spouses becoming
eligible for the program in a given year would receive the same
lump-sum amount, regardless of their ages.  We looked at two
configurations of this alternative.  One, described in figure 3.2, is
a lump sum equivalent to the present value of the average lifetime
benefits under the current program structure.\16

The second, described in figure 3.3, is a substantially reduced, and
optional, lump sum. 


--------------------
\16 In most pension plans, lump sum payments would be calculated for
each individual based on factors such as age.  We calculated a single
lump sum for everyone because that was more simplified.  Calculating
lump sums on an individual basis would not significantly alter costs. 


      PROVIDING A LUMP SUM PAYMENT
      EQUIVALENT TO LIFETIME
      BENEFITS WOULD BE TOO COSTLY
      IN EARLY YEARS
-------------------------------------------------------- Chapter 3:2.1

Under this alternative's first option, the lump sum payments in any
given year would be equivalent to the present value of the total DIC
benefits, on average, that surviving spouses entering the program in
that year could expect to receive over their lifetimes; the
calculation assumes that the benefit level in effect in that year
remains unchanged throughout the beneficiaries' lifetimes.  At the
1994 annual benefit level of $9,228, the lump sum paid to that year's
entrants to the program would be $107,318.  However, because the
Congress would likely increase the benefit in future years to reflect
increases in the cost of living, beneficiaries entering the program
in 1995 and subsequent years would receive lump sum payments greater
than $107,318.  Because the lump sum paid is equivalent, on a present
value basis, to the expected lifetime benefits under the current
program, we assumed that DOD SBP benefits would not be affected by
the adoption of this alternative. 

Figure 3.2 compares outlays under this configuration with those under
the current program over a 15-year period.  For the first several
years the annual federal outlays would be considerably higher than
they would be under the current payment method--almost $1.2 billion,
or nearly 12 times as high in the first year alone.  Over the 15-year
period, the present value of outlays would be almost double those
under the current method. 

   Figure 3.2:  15-Year Outlays
   and Costs of Providing Lump Sum
   Payments Are Substantial

   (See figure in printed
   edition.)

This alternative would greatly increase the flexibility surviving
spouses have in using the income they receive from the program.  They
would be able, for example, to invest the funds to earn current or
future income or make large purchases, such as a home or car.  Also,
under this alternative VA would have fewer benefit checks and other
administrative matters, such as address changes, to process. 

One potential drawback to this alternative is the increased
responsibility surviving spouses would have for planning for their
future financial security.  If they mismanaged their lump sum
payments--and several experts we spoke with suggested this could
happen fairly frequently--they could face years of inadequate income. 
To the extent their incomes fell below federal poverty guidelines,
they could become eligible for public assistance, thus increasing
costs to the government and potentially making this alternative more
costly than indicated in the figure. 

The principal drawback to this alternative, however, is the negative
impact it would have on the federal budget for the next several
years.  Substantially larger outlays would be required in the early
years.  Under PAYGO rules, these increased outlays would have to be
balanced by spending reductions or revenue increases. 


      AN OPTIONAL REDUCED LUMP SUM
      WOULD LOWER BENEFITS WITH
      UNCERTAIN EFFECTS ON COSTS
-------------------------------------------------------- Chapter 3:2.2

We also examined the use of an optional, smaller lump sum payment. 
We selected a payment of $35,000, an amount equivalent to about
one-third of the present value of average lifetime DIC benefits in
1994; other amounts could be used.  Under this approach, surviving
spouses would be offered the optional lump sum payment only once, at
the time that they were determined to be eligible for the DIC
program.  Those not choosing the lump sum would continue to receive
benefits under the current program structure. 

Because we could find no similar program that had offered such a lump
sum option, we had no historical basis for estimating the proportion
of spouses that would choose to receive a payment of that size.  We
therefore analyzed the alternative using two assumptions regarding
the proportion of surviving spouses that would choose this lump sum
option. 

Figure 3.3 shows the 15-year outlay streams and the present values of
those outlays resulting from the use of a lump sum payment of $35,000
under each of the two participation rates we chose.  The first column
shows the total benefit outlays that would occur if a random cross
section of 25 percent of eligible spouses chose the $35,000 lump sum
form of payment each year.  The second column shows the outlays that
would result if a random cross section of 50 percent made that
choice.  These data show that the present value of the savings to the
government over a 15-year period would be $1.175 billion if 25
percent of eligible spouses chose the lump sum payment, and $2.35
billion if 50 percent of spouses did so. 

   Figure 3.3:  Reduced Lump Sum
   Payments Could Lower Federal
   Costs

   (See figure in printed
   edition.)

The most obvious potential advantage of the small lump sum
configuration is that it could reduce federal outlays after the first
several years.  As with the larger lump sum, this alternative also
would provide some surviving spouses more flexibility with their
finances. 

However, a reduction in outlays is not certain.  The estimates
presented assume that a random cross section of eligible surviving
spouses would choose an optional lump sum payment, which may not be
correct.  Rather, older spouses might be more likely to take the lump
sum payment than those who are younger because older spouses might
anticipate not living long enough to receive a large number of
monthly payments.  Similarly, surviving spouses who contemplated
remarriage might be more likely to choose the lump sum knowing that
they will lose their monthly benefits upon remarriage.  These kinds
of selection patterns would reduce federal savings and, if extensive,
could increase federal costs. 

Additionally, the increased flexibility provided surviving spouses
would be at the cost of dramatically reduced lifetime benefits. 
Also, potential savings might be reduced to the extent that surviving
spouses (1) require federal assistance in later years because of a
lack of income and (2) receive SBP benefits to compensate for the
lower DIC payments. 


   SIGNIFICANT REDUCTIONS IN
   VETERANS' DISABILITY
   COMPENSATION WOULD BE REQUIRED
   TO FUND DIC BENEFITS
---------------------------------------------------------- Chapter 3:3

Under the third alternative, the monthly disability compensation
benefits of veterans who are married, and thus likely to leave a
surviving spouse, would be reduced to fund the DIC program.  As a
result, no new federal spending would be required to pay for future
entrants.  The government would save the total cost of these benefits
because they would be funded with the premiums paid by reducing
veterans' disability compensation. 

Under this alternative, we assumed that the surviving spouses of all
deceased disabled veterans would be eligible for DIC benefits.  This
is because it is not possible to predict with certainty which
veterans will die from their service-connected disabilities and,
therefore, which veterans should have their disability compensation
benefits reduced. 

This alternative would substantially reduce federal outlays by
transferring the cost of benefits paid under the DIC program from the
federal government to many of the nation's disabled veterans.  It
would also reduce VA's administrative costs by simplifying
eligibility determinations.  Whereas under the current program VA
must determine whether a veteran's death was caused by a
service-connected disability, under this third alternative VA would
need to determine only that the veteran had died and that the
claimant was in fact the surviving spouse. 

However, because veterans would be paying for the future DIC benefits
for their survivors, offsetting DOD SBP benefits with DIC payments
may be inappropriate.  If the SBP offset were eliminated, federal
savings would be reduced because of increased DOD SBP payments. 
Additionally, including in the program the surviving spouses of all
disabled veterans would increase the number of surviving spouses who
become eligible for the program each year by more than 28,000.  In
effect, the character of the program would change from one that
provides financial support for the surviving spouses of veterans who
lose their lives as a result of military service to the equivalent of
a mandatory life insurance program for all married disabled veterans. 
We calculated that an 81-percent reduction in veterans' disability
compensation benefits would be required to fully fund DIC benefits at
current levels for surviving spouses of all disabled veterans and
servicemembers who die while on active duty. 

We also looked for other premium-based alternatives that had the
possibility of saving the government money but that would result in a
less drastic reduction in veterans' disability compensation. 
However, because this type of funding requires broadening the
eligibility for benefits to surviving spouses of all disabled
veterans, in each case either the veterans' compensation would still
be drastically reduced or no savings would result. 

For example, in one other configuration of this alternative, we
assumed that DIC benefits would be available only to spouses of
veterans rated 30-percent or more disabled and that compensation
payments to those veterans would be reduced by 10 percent to
partially fund their survivors' benefits.  The reduction in
compensation payments would fund about half of the DIC benefits, and
over a 15-year period the net cost to the government on a present
value basis would be about $1.26 billion less than the current
program.  During the period, however, costs under this alternative
would begin to rise relative to the current program as greatly
increased numbers of surviving spouses entered the program. 
Beginning in 2002, the annual cost of this alternative would become
greater than the cost of the


   CONCLUSIONS
---------------------------------------------------------- Chapter 3:4

While each of the alternatives specified in the Veterans' Benefits
Act of 1992 offers some advantages, each has substantial drawbacks. 
Although the optional small lump sum alternative offers some
possibility of saving federal funds and providing flexibility to
beneficiaries, there are important unknowns about how it would work
in practice.  The other alternatives would substantially increase
federal outlays, either in the short run or overall, or could put
some disabled veterans' or their survivors' economic well-being in
jeopardy. 


BASING DIC BENEFITS ON VETERANS'
DISABILITY COMPENSATION IS A
VIABLE OPTION TO THE CURRENT
PROGRAM
============================================================ Chapter 4

From the program's inception in 1957 until 1992, DIC benefits varied
according to the servicemember's or veteran's pay grade.  When it
amended the program in 1992, the Congress no longer differentiated
benefits according to this proxy for lost support.  However, the
cognizant committees reiterated that partially replacing support lost
as a result of the veteran's death was a program goal.  Consequently,
we developed another alternative that would base benefit levels on a
measure of lost support.  Under this alternative, the measure of lost
support would be the veterans' basic disability compensation
payments.  Thus, benefits would be related to the amount of support
provided by VA and lost when the veterans die. 

This alternative would make more proportional the change in VA
support experienced by surviving spouses upon veterans' deaths.  It
would also increase benefits to spouses of the most severely
disabled, consistent with the Congress' 1992 provision that provided
a supplemental benefit for certain spouses of totally disabled
veterans. 


   BASING DIC BENEFITS ON
   VETERANS' COMPENSATION PAYMENTS
   WOULD MAKE CHANGES PROPORTIONAL
   FOR ALL SURVIVORS
---------------------------------------------------------- Chapter 4:1

Under this alternative, DIC payments to surviving spouses would be a
fixed percentage of the disability compensation, without supplemental
payments,\17 that had been paid to the veterans prior to their
deaths.  This percentage could be set at any level; we based our
analysis on the percentage that could be paid while keeping DIC
program costs approximately equal to those under the current flat
rate benefit structure.  Specifically, under such a program,
surviving spouses who became eligible in 1994 would receive DIC
benefits that would be equal to 61 percent of the disability
compensation--before any supplemental payments for additional
disabilities or aid and attendance--that had been received by the
veterans prior to death (see table 4.1).\18 In the case of surviving
spouses of servicemembers who died while on active duty, the payments
would be 61 percent of the disability compensation amount that had
been received by veterans who were 100-percent disabled. 



               Table 4.1

1994 DIC Benefits if Based on Veterans'
        Disability Compensation

  Survivors' new  ility
    DIC payments  ation
----------------  -----
            $637
           1,215
           1,852
           2,643
           3,770
           4,743
           5,995
           6,939
           7,810
          12,986

This alternative would make changes in the support provided by
VA--that is, the difference between disability compensation and DIC
benefits--more proportional among surviving spouses.  Under the
current flat rate system--as well as the prior rank-based
system--there is a wide variation in the difference between the
support, in terms of basic compensation, the veteran had been
receiving and that provided to the surviving spouse.  Figure 4.1
shows that while the survivors of totally disabled veterans
experienced a decline in benefits of over 50 percent, those of
10-percent disabled veterans received DIC benefits almost nine times
the amount the veteran had received. 

   Figure 4.1:  Differences
   Between Veterans' Compensation
   and Spouses' Benefits Vary
   Dramatically Depending on
   Veterans' Disability Levels

   (See figure in printed
   edition.)

By making the benefit levels proportional to the veterans' basic
disability payments, this alternative would cause all spouses to
experience a decrease in support after the veterans die.  This is in
contrast to the current program under which some spouses receive
substantially increased benefits and others receive substantially
less.  Table 4.2 compares disability compensation paid to veterans
with the survivor benefits received by spouses under the current DIC
program and this alternative. 



               Table 4.2

    Basing DIC Payments on Veterans'
  Disability Compensation Would Reduce
  Disparities Among Surviving Spouses


--------------------
\17 We did not include the supplemental payments to these veterans
when calculating survivors' benefits because these benefits were
intended to defray the expenses of caring for veterans and would not
be needed for that purpose after the veterans die. 

\18 Our calculation of 61 percent as a budget-neutral rate did not
consider the effect of changes in SBP benefits under this
alternative.  It is possible that some DIC recipients would receive
increased SBP payments and others would receive decreases.  If the
net effect of the alternative was to increase SBP payments, it would
be necessary to lower the percentage to maintain federal budget
neutrality.