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 ************************************************************************** * This file contains an ASCII representation of the text of a GAO * * report. 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We are unable to accept electronic orders * * for printed documents at this time. * ************************************************************************** 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.