“Individual unemployability,” or IU, is a way for the Department of Veterans Affairs (VA) to compensate veterans at the 100 percent rate who are unable to work because of their service-connected disability, although their rating according to VA’s Schedule for Rating Disabilities (Rating Schedule) does not reach 100 percent. IU is based on an evaluation of the individual veteran’s capacity to engage in a substantially gainful occupation, which is defined as the inability to earn more than the federal poverty level, or about $10,000 a year, rather than on the schedular evaluation, which is based on the average impairment of earnings concept. IU takes occupational as well as medical factors into account. Age is expressly prohibited as a consideration, meaning that veterans beyond the normal age of retirement may secure benefits under the provisions of IU. The effects of nonservice-connected disabilities also are prohibited as a consideration.
IU is a fast-growing part of the disability compensation program. The number of recipients has increased from about 112,400 veterans in FY 2000 to about 228,500 in FY 2006, or 103 percent.1 The overall number of veterans receiving any form of disability compensation increased by about 16 percent over the same period. At the end of FY 2006, 8.5 percent
Figures from the VA FY 2008 budget request, pp. 2A1-2A12. http://www.va.gov/budget/summary/VolumeIINationalCemeteryAdministrationBenefitsProgramsandDepartmentalAdmin.pdf (accessed May 8, 2007).
of veterans receiving compensation were rated IU, compared with 4.9 percent at the end of FY 2000.
By service era, the largest group receiving IU is Vietnam veterans (113,956 in FY 2005, or 52 percent), followed by peacetime veterans (36,383, or 16.4 percent), and World War II veterans (36,153, or 16.3 percent). See Figure 7-1.
Currently, according to the Veterans Benefits Administration (VBA), 35 percent of IU beneficiaries have mental health conditions as their major diagnosis (of which more than two-thirds are posttraumatic stress disorder [PTSD] diagnoses), followed by musculoskeletal conditions (29 percent), and cardiovascular conditions (13 percent) (Flohr, 2006).
According to the Government Accountability Office (GAO), at the end of FY 2005, about 38 percent of all IU beneficiaries were age 65 or older, 13 percent were between the ages of 60 and 64, and 49 percent were age 59 or younger. Forty-six percent of those who were granted IU benefits from October 2004 to October 2005 were age 60 or older, and 19 percent were age 75 or older (for comparison, 46 percent of all living veterans are age 60 or older and 16 percent are age 75 or older) (GAO, 2006).
The VA Office of Inspector General reports that the rate of IU grants varies substantially by state. In FY 2004, veterans receiving compensation who were rated IU ranged from a low of 3.3 percent to a high of 20.1 percent (median of 7.6 percent) among the states. In terms of all resident veterans, not only veterans with disabilities, IU beneficiaries ranged across the states from 2.5 per thousand veterans to 28.2 per thousand (median of 7.8 per thousand) (VA, 2005).
Congress held hearings on IU in 2005, out of concern about the growth in the number of beneficiaries and the advanced age of many of them.
DEFINITION OF INDIVIDUAL UNEMPLOYABILITY
IU is regulatory, not statutory. The key section of the regulation reads:
Total disability ratings for compensation may be assigned, where the schedular rating is less than total, when the disabled person is, in the judgment of the rating agency, unable to secure or follow a substantially gainful occupation as a result of service-connected disabilities. Provided that, if there is only one such disability, this disability shall be ratable at 60 percent or more, and that, if there are two or more disabilities, there shall be at least one disability ratable at 40 percent or more, and sufficient additional disability to bring the combined rating to 70 percent or more.2
The regulation goes on to say: “Marginal employment shall not be considered substantially gainful employment” and defines marginal employment as earned income that does not exceed the poverty threshold for one person established by the Bureau of the Census. In certain circumstances, such as the protected environment provided by a family business or sheltered workshop, the veteran with higher earnings may be considered for IU by the director of the Compensation and Pension (C&P) Service.
If a veteran is rated 100 percent according to the medical criteria in the Rating Schedule, IU is not considered because, VA has reasoned, it is not needed. There is an advantage for the veteran in being rated 100 percent according to the Rating Schedule rather than extraschedularly for IU: a schedular 100 percent rating allows the veteran to engage in substantially gainful employment, while an extraschedular 100 percent rating based on IU does not.
If a rater finds that a veteran is unable to secure and follow a substantially gainful occupation because of his or her service-connected disability, but the veteran does not meet the minimum rating level of 60 percent for one disability or 70 percent for multiple disabilities, one of which is 40
percent, the case may be submitted to the director of the C&P Service to decide whether to grant an extraschedular 100 percent rating.3
ORIGIN AND HISTORY OF INDIVIDUAL UNEMPLOYABILITY
Authorization for IU was added to the 1933 Rating Schedule in 1934. Previously, the Rating Schedule said that total disability exists when any impairment makes it impossible for the average person to follow a substantially gainful occupation. The 1934 revision of the regulations authorized total disability ratings “without regard to the specific provisions of the rating schedule” if a veteran with disabilities is unable to secure or follow a substantially gainful occupation as a result of his disabilities (U.S. Congress, Senate, Committee on Veterans’ Affairs, 2005).4
At that time, the ratings were determined by three-member rating boards consisting of a medical specialist, a legal specialist, and an occupational specialist (Griffith, 1945). Currently, the decision is made by a rating veterans service representative (RVSR), based on medical records, usually including a C&P disability examination by a physician or psychologist, and possibly including a “social and industrial” (occupational) evaluation by a VA clinical social worker. The RVSR, although a lay person, has medical and legal training, but not vocational training.
PROCEDURES FOR DETERMINING INDIVIDUAL UNEMPLOYABILITY
Before even considering IU, the veteran is evaluated for a schedular 100 percent evaluation. If he or she is evaluated at 100 percent according to the Rating Schedule, any pending IU claim is disregarded.
A veteran must be unable to secure or retain employment by reason of service-connected disability and either meet the requirements of 38 CFR 4.16 or have an extraschedular evaluation approved by the under secretary for benefits or the director of the C&P Service under 38 CFR 3.321.5
The requirements of 38 CFR 4.16 are such that, if there is only one service-connected disability, it must be rated at 60 percent or more; if there are two or more, one must be 40 percent or more, and the combined rating must be 70 percent or more.6 According to 38 CFR 3.321, the under secretary for benefits or the director of the C&P Service may grant higher
compensation, including total disability (100 percent), than the Rating Schedule allows in “exceptional” cases. “The governing norm in these exceptional [“extraschedular”] cases is: A finding that the case presents such an exceptional or unusual disability picture with such related factors as marked interference with employment or frequent periods of hospitalization as to render impractical the application of the regular schedular standards.”7
When deciding an IU claim, the rater is supposed to take into account the veteran’s current physical and mental condition and his or her employment status, including the nature of employment, and the reason employment was terminated.8
The claim must contain sufficient medical evidence to evaluate the veteran’s current physical and mental condition. This evidence includes (but is not limited to) the results of VA examinations, hospital reports, and/or outpatient records. RVSRs are instructed to schedule a medical examination if the veteran’s medical evidence is incomplete or inconsistent.
Regarding the nature of the veteran’s previous employment and the reason for termination, RVSRs are instructed to review employment and work history for the five-year period preceding the date on which the claimant reports that he or she has become too disabled to work, as well as any work performed after this date.9 Each employer for whom the veteran worked during the 12-month period prior to the date the veteran last worked must complete a form as well.10 If an employer’s form is incomplete (e.g., only states that the veteran retired), raters must request additional information about the nature of the retirement (e.g., whether retirement was due to disability and, if so, the nature of the disability). Instructions to the raters about determining the cause of unemployment and the circumstances surrounding a veteran’s retirement imply that IU should not be granted if the veteran retired from the workforce for reasons other than disability, but this is not clearly stated in the regulations, adjudication manual, or training materials.
Social Security Administration reports are supposed to be obtained and considered if the veteran’s evidence is insufficient to award compensation and shows that he or she receives Social Security disability benefits. Vocational rehabilitation records may be obtained and considered whenever
38 CFR 3.321.
VA’s Compensation and Pension Adjudication Procedure Manual, M21-1MR, Part IV, Subpart ii, Ch. 2. http://www.warms.vba.va.gov/admin21/m21_1/mr/part4/subptii/ch02/ch02_secf.doc (accessed March 15, 2007).
VA Form 21-8940, “Veteran’s Application for Increased Compensation Based on Unemployability.”
VA Form 21-4192, “Request for Employment Information in Connection with Claim for Disability Benefits.”
there is an indication that training was not found to be medically feasible or a veteran’s attempt to be trained was unsuccessful.
RVSRs are instructed not to apply the concept of average impairment used in other compensation decisions to IU decisions.
“Extraneous” factors, such as age, nonservice-connected disabilities, injuries occurring after military service, availability of work, or voluntary withdrawal from the market are supposed to be identified and isolated to determine the severity of the service-connected conditions. The severity of service-connected disabilities alone must be enough to preclude the veteran from obtaining or retaining substantially gainful employment.
Certain multiple disabilities may be considered as one disability for the purpose of meeting the 38 CFR 4.16(a) requirements of a 60 percent rating of one condition or 70 percent combined rating with one condition rated at 40 percent or higher. These include (1) disabilities of one or both upper extremities, including the bilateral factor, if applicable; (2) disabilities resulting from common etiology or a single accident; (3) disabilities affecting a single body system, such as orthopedic, digestive, respiratory, cardiovascular-renal, or neuropsychiatric; (4) multiple injuries incurred in action; or (5) multiple disabilities incurred as a prisoner of war.
Marginal employment, defined by VA as earned annual income below the poverty level (or if above the poverty level, employment in a protected environment, such as a sheltered workshop or family business), is not to be considered substantially gainful employment.
The focus of an IU claim record is on the accumulation of medical information, and raters are not required to have vocational records. However, if a veteran’s records indicate that he or she is participating in VA’s Vocational Rehabilitation and Employment (VR&E) program, the rater is required to obtain the VR&E records and use them in the IU evaluation.11 Whether vocational records from other sources may be considered is not indicated.
Reevaluation of IU Entitlement
To verify continued eligibility for IU benefits, all IU recipients must complete annual employment certification forms describing work performed in the preceding year for each year they are receiving IU benefits. A veteran is permitted to work and engage in substantially gainful employment for up to 12 months. If a veteran engages in substantially gainful employment beyond 12 months or if a veteran fails to return his or her employment
certification form, monthly payments are reduced to amounts corresponding with the schedular rating.
VA’S PROPOSAL TO REVISE AND CODIFY THE INDIVIDUAL UNEMPLOYABILITY REGULATIONS
In October 2001, VA published a Notice of Proposed Rulemaking (NPRM), which was a draft of a totally rewritten set of regulations governing IU. According to the NPRM, the draft regulations would “revise and clarify the procedures and substantive standards for determining whether a veteran’s disabilities … prevent him or her from engaging in substantially gainful employment.”12 The goal of the revision was to address the “scattered and confusing” set of current regulations by creating better-defined and more clearly stated specific requirements for this entitlement along with clearer standards.
The revision proposed a number of changes throughout sections 4.15– 4.18 of the regulations. These included streamlined terminology, elimination of redundancy and unnecessary material, definition of terms, and outlining of specific requirements. Proposed changes included the following:
Reorganize and rewrite to specify the factors that would trigger consideration of IU rating and total “extraschedular” ratings
Reduce the percentage threshold for combined ratings from 70 to 60 percent and eliminate the requirement that one of the disabilities must be rated at least 40 percent
Create a uniform standard to determine an individual’s inability to engage in “substantially gainful employment,” instead of using as a basis for the determination a presumption of helplessness or bedridden status
Define “substantially gainful employment” as any work that is generally done for pay or profit that the veteran is able to perform with sufficient regularity and duration to provide a reliable source of income
Clarify that an assessment of the veteran’s ability to perform activities generally considered necessary for “substantially gainful employment” would be the determining factor in assigning a total rating
In response to Moore v. Derwinski, require raters to consider medical evidence describing the veteran’s service-connected disabilities and the extent to which they limit his or her ability to perform “activities normally required for substantially gainful employment,” meaning both exertional
and nonexertional activities that as a group affect the ability to engage in any form of employment13
Clarify that if a veteran is employed, earned income that exceeds an amount that is more than twice the maximum annual pension rate for a veteran without dependents will be considered conclusive evidence that the veteran is engaged in substantially gainful employment
Eliminate the concept of “marginal employment,” an individual unemployability eligibility criterion defined by VA as earned annual income below the poverty level, or if above the poverty level, employment in a protected environment such as a sheltered workshop or family business
Provide a list of specific factors that the rater must address in every claim for a total rating for compensation purposes
Require the rater to consider evidence of any other unusual limitations imposed by the service-connected disability (e.g., uncharacteristically frequent periods of hospitalization)
Include a list of factors that VA would disregard in determining entitlement, including age, nonservice-connected disabilities, the veteran’s training or lack thereof unless service-connected disabilities would impede further training, the state of the economy in the veteran’s community, and the fact that prior employment may have been terminated because of such factors as employer relocation or technological advances that make a prior job obsolete
VA should state that it will consider age, occupational background, training, and education only to the extent that they limit further training and adaptation
A number of external and VA internal comments were received during the open comment period. Common themes were the questioning of VA’s approach to making determinations based solely on “medical evidence” (excluding “lay evidence”); the inclusive and exclusive nature of percentage ratings and related extraschedular issues; the discussion of vocational rehabilitation issues relative to the consideration of benefits granted or denied based on age; the quality and appropriateness of evaluations; training or lack thereof; availability and types of work allowed and disallowed; regularity and duration of periods of work; alternate employment following surgery and during and after convalescence; and the ability or inability to continue working faced with the exigencies of managing disability.
The NPRM was rescinded on December 23, 2005. The reason given in the Federal Register was
The VA has carefully considered the issues relating to the payment of benefits under the proposed rule and determined that it does not accomplish the stated purpose or intended effect. Accordingly, VA is withdrawing the proposal and is developing a new proposal, which it intends to publish at a later date.14
CURRENT STATUS OF INDIVIDUAL UNEMPLOYABILITY: GROWTH AND CONTROVERSY
In May 2005, the VA Office of Inspector General issued a report on state variances in VA disability compensation payments (VA, 2005). This report was in response to congressional interest in the reason for differences in VA’s average monthly disability compensation payments from state to state. VA’s inspector general selected two clusters of states, one representing the six states with the highest average compensation payments and the other representing the six states with the lowest payments. Among other data methods used, the office issued a questionnaire to 1,992 VA regional office rating specialists, evaluated 2,100 PTSD claims folders, and reviewed the quality and consistency of medical examinations used to support disability rating decisions.
PTSD constitutes the second largest percentage of compensation grants after musculoskeletal conditions and the largest for any specific diagnosis. It is also one of the fastest growing disability conditions. The data showed that the variance in the number of PTSD cases rated at 100 percent is a primary factor contributing to the variance in average annual compensation payments by state. Another factor was the percentage of veterans with disabilities rated for IU. From FY 1999 to FY 2004, the number of veterans receiving IU benefits had more than doubled, from 95,052 to 196,916. One quarter (53,390) of the IU cases in FY 2004 were PTSD cases. The high-state cluster averaged 14.3 percent of veterans with IU compared with 5.4 percent in the low-state cluster.
In October 2005, the Senate Committee on Veterans’ Affairs held a hearing on individual unemployability (U.S. Congress, Committee on Veterans’ Affairs, 2005). Senator Craig, the chairman, requested the hearing to determine what was being done to ensure that today’s veterans with disabilities are able to become productive members of society. He indicated a concern about the 107 percent increase in IU beneficiaries between 1999 and 2004, which in his view is an undesirable life circumstance, one of last resort for all except those for whom it is clearly appropriate.
According to the senator, the purpose of the congressional inquiry was to establish an understanding of the purpose of IU and the standard VA
uses in determining a veteran’s eligibility. He mentioned a particular concern about the age of IU beneficiaries, based on the fact that a fair number of IU recipients are well beyond traditional retirement ages. He posed the following question:
Why is a benefit based on unemployability being paid to individuals who, on account of age, would likely not be looking for work anyway? In other words, they are at retirement age by even today’s modern terms (U.S. Congress, Senate, Committee on Veterans’ Affairs, 2005).
Admiral Daniel Cooper, VA undersecretary for benefits, testified that there is no clear reason for the doubling of IU beneficiaries. However, he pointed out concurrent significant changes:
From the end of FY 1999 to the end of FY 2005, the number of veterans receiving compensation had increased by 17 percent from 2,252,980 to 2,636,979 at the end of fiscal year 2005
There was an increase in the average combined disability over the same period
At the end of 2005, 29 percent of veterans receiving compensation had combined ratings of 60 percent or greater, which makes them eligible to apply for IU, compared with 17 percent in 1999
Recent court decisions had also increased IU ratings15
Advancing age, diabetes, and various presumptions of service connection for cancers associated with herbicide and radiation, as well as a significant increase in the number of veterans awarded service connection for PTSD, accounted for a substantial portion of the increase
Richard Surratt, deputy national legislative director of the Disabled American Veterans, testified that the increase of veterans rated for IU over the past several years was somewhat consistent with the higher numbers of veterans in the population who are more seriously disabled. From FY 2000 to FY 2004, the number of veterans with 60 percent ratings increased by 31 percent; veterans rated 70 percent increased by 60 percent; veterans rated 80 percent increased by 75 percent; and veterans rated 90 percent increased by 91 percent. During the same period, there was an increase of 78 percent of veterans rated totally disabled due to IU. He added that an aging veteran population also may contribute to increased numbers of unemployable veterans, including those with progressive or degenerative conditions worsening with age and Vietnam veterans with disabilities whose disabilities are on average rated higher than their counterparts from other periods of service, and who had an estimated median age of
57.4 years at the end of FY 2004. Mr. Surratt also cited the contribution of PTSD prevalence among Vietnam veterans (the second most prevalent disability for this group) and the availability of judicial review of VA decisions as contributing factors to the expanding number of IU beneficiaries.
Mr. Surratt expressed the view that VA should look at the medical and employment evidence and any available relevant records from the VR&E Service and the Social Security Administration to create an adequately developed record in evaluating individual unemployability.
Admiral Cooper was asked a number of questions about apparently controversial issues: vocational rehabilitation (in its many aspects, including follow-up health care), the ages of beneficiaries and related matters, and PTSD (including VA’s decision to conduct a review of PTSD decisions and the attendant workload). For example, he was asked whether trained vocational counselors should be performing IU assessments rather than medical examiners, whether advanced age (31 percent of the recipients of the IU benefits were over the age of 71) should not preclude the receipt of IU benefits, and why periodic future examinations are not requested if an IU recipient is over age 55. Senator Craig stated a general sense that the system to help veterans return to productivity is less emphasized than the granting of benefits. Admiral Cooper indicated that he did not completely agree with this view, stating that both younger and older veterans at retirement age are encouraged to participate in vocational rehabilitation.
In May 2006, GAO issued an IU report that found that VA’s process for ensuring ongoing eligibility of beneficiaries is inefficient and ineffective, and relies on old data, has outdated and time-consuming manual procedures, offers insufficient guidance, and provides weak eligibility criteria (GAO, 2006). Further, enforcement activities are not tracked and reviewed to better ensure their effectiveness. GAO found VA to be among the high-risk federal disability programs in need of modernization, including the compensation program, because it had not kept up with trends in science, technology, and medicine, and in the labor market.
CONSISTENCY IN INDIVIDUAL UNEMPLOYABILITY DECISION MAKING
The 2005 report of VA’s Office of Inspector General focused on the variation in average disability compensation payments from state to state in FY 2004 (they ranged from a low of $6,961 to a high of $12,004), but data tables in the report’s appendix include the number of IU beneficiaries in each state. An analysis of these data shows that the percentage of veterans receiving compensation in FY 2004 who were rated for IU ranged from a low of 3.3 percent in Maryland to a high of 20.1 percent in New Mexico (median state 7.6 percent) (Figure 7-2). In terms of all resident veterans, not
just veterans with disabilities, IU beneficiaries ranged from 2.5 per thousand veterans in Maryland to 28.2 per thousand in New Mexico (median state 7.8 per thousand) (Figure 7-3).
There is evidence that VA is taking steps to address concerns regarding inconsistencies in IU claims processing and the large number of IU recipients of advanced age. On February 21, 2007, the director of the C&P Service issued a training letter to all regional offices and centers handling IU claims. According to the cover memo, the purpose of the letter was to “promote consistency and accuracy in the identification, development, and evaluation of claims for individual unemployability by regional offices.” The letter states in its introductory paragraph:
Benefits granted under the VA Rating Schedule are intended to compensate veterans for the average impairment in earning capacity that results from service-connected disease or injury. IU is a special additional benefit to address the truly unique disability picture of a veteran who is unemployable due to service-connected disability, but for whom the application of the Rating Schedule does not fully reflect the veteran’s level of impairment. An award of IU allows the veteran to receive compensation at a rate equivalent to that of a 100 percent schedular award. However, this benefit is not intended, by regulation or policy, to be a quasi-automatic benefit granted whenever a veteran has met a qualifying schedular evaluation or reached an advanced age.16
Raters are reminded to consider IU only in exceptional cases (emphasis added), and to first determine whether a veteran’s disabilities warrant a 100 percent schedular evaluation before considering entitlement to IU.
Regarding age as a factor in IU decision making, the letter states that advanced age (not defined) may relate to voluntary retirement, rather than disability, and that voluntary retirement does not necessarily equate with unemployability. Because of this fact, for IU claims submitted by veterans of advanced age, raters are instructed to take care in distinguishing worsened disability that would have caused unemployability from unemployment due to voluntary retirement. Raters are also instructed to discuss age in their explanation of how the available evidence was evaluated to arrive at the decision to grant or deny IU.
The training letter also elaborates on several of the procedures for identifying and evaluating IU claims (e.g., passive versus active application,
requirements for continued eligibility), only tersely described in the VBA rating training manual and the Code of Federal Regulations.
Perhaps in response to concerns highlighted in the May 2006 GAO report on the number of IU recipients of advanced age, VBA data show that the number of decisions (meaning both grants and denials) on IU claims for veterans ages 70 and older fell from 14,554 in 2004 to 8,897 in 2006. Meanwhile, for all other age groups, the number of IU decisions increased (Figure 7-4).
With the exception of veterans ages 50 and younger, the percentage of IU claims granted fell for all age groups between 2004 and 2006 (Figure 7-5). The largest drop in grants was among applicants ages 70 and older; the percentage granted IU fell from 68.6 percent in 2004 to 42.6 percent in 2006.
FINDINGS AND RECOMMENDATIONS
Vocational Assessment in IU Evaluation
Raters use disability evaluation reports from medical professionals and other medical records to analyze IU claims, but they do not have comparable functional capacity or vocational evaluations from vocational experts
except in cases in which the veteran applicant is participating in VA’s VR&E program. Raters must determine the veteran’s ability to engage in normal work activities from medical reports and from information in the two-page application for IU and the one-page report from employers, neither of which asks about functional limitations. Raters do not receive training in vocational assessment, nor does VBA have vocational experts whom raters may consult when evaluating IU applications.
The VR&E program has vocational counselors with appropriate education and training to assess employability, but not all veterans claiming IU receive such an evaluation and, if they do, it is usually after they are granted IU. VA could use the vocational portion of a multidisciplinary disability assessment (described in Chapter 3) of veterans separating from service in determining both VR&E needs and IU. In instances in which veterans are applying for IU after separating from service, the multidisciplinary assessment could be done at the time of application.
Recommendation 7-1. In addition to medical evaluations by medical professionals, VA should require vocational assessment in the determination of eligibility for individual unemployability benefits. Raters should receive training on how to interpret findings from vocational assessments for the evaluation of individual unemployability claims.
IU Eligibility Thresholds
The basis for the current thresholds—60 percent for one impairment or 70 percent for more than one, as long as one of them is rated 40 percent—is not known. It was adopted in 1941, replacing the original and stricter 1934 thresholds of 70 and 80 percent. VA’s 2001 proposed revised regulations would have changed the threshold to 60 percent for both single and multiple impairments. VA said, “In our view, multiple service-connected disabilities combining to a 60 percent evaluation are no less likely to result in total disability based on individual unemployability than single service-connected disabilities evaluated as 60 percent or higher,” but gave no evidence for this conclusion.
Having a threshold makes obvious administrative sense, as long as it is not so high that many people with lower ratings who are legitimately unemployable are excluded. What that threshold should be and the extent to which the current threshold requirements reflect unemployability are not known.
VA regulations allow individuals with lower than current threshold ratings to apply for and receive IU, if approved by the director of the C&P Service.
Recommendation 7-2. VA should monitor and evaluate trends in its disability program and conduct research on employment among veterans with disabilities.
For example, VA could survey a sample of veterans to determine how many of them with lower schedular ratings are unemployed or have earnings low enough to qualify for individual unemployability, and consider appropriate changes in the rating criteria based on survey results. Employment and earnings trends of veterans who do meet individual unemployability eligibility criteria should be followed over time. Further, as a way of checking if the rating criteria for a total schedular rating are too stringent, VA should monitor claims and awards for individual unemployability by condition to discern whether veterans in a particular diagnostic category are disproportionately represented among IU recipients.
Age of IU Recipients
The purpose of IU benefits is to provide full benefits to veterans who do not meet a schedule 100 percent disability rating and who cannot work because of service-connected disability. IU is not meant to provide benefits to every veteran with disabilities without earnings, such as veterans who voluntarily withdraw from the labor market because of retirement or for
other reasons. However, GAO statistics indicate that a number of new awards for IU benefits are to veterans who are well beyond the normal retirement age for other government programs, such as Social Security. The committee did not have data indicating whether these veterans were active in the labor market until they applied for IU benefits or whether they had not been active in the labor market for many years prior to their application for IU benefits.
Recommendation 7-3. VA should conduct research on the earnings histories of veterans who initially applied for individual unemployability benefits past the normal age of retirement for benefits under the Old Age, Survivors, and Disability Insurance Program under the Social Security Act.
Factors Considered in IU Evaluation
The labor market has undergone a substantial shift from one largely based on manufacturing for the first three-quarters of the 20th century to today’s primarily service-based market. The reduction in the physical demands of many jobs may make employment easier for older workers who have the appropriate education and training. However, for workers whose skills are limited to manufacturing or a particular trade (e.g., construction, mining), finding work may be difficult in the current job market.
In the current system, raters do not consider factors such as education and work experience in IU eligibility determination; service-connected conditions alone must be enough to prevent the veteran from retaining substantially gainful employment.
Recommendation 7-4. Eligibility for individual unemployability should be based on the impacts of an individual’s service-connected disabilities, in combination with education, employment history, and the medical effects of that individual’s age on his or her potential employability.
Employment of IU Recipients
Under the current system, a veteran on IU is permitted to engage in substantially gainful employment for up to 12 months before IU benefits are terminated. After this grace period the veteran’s payments are based on his or her schedular rating of 60, 70, 80, or 90 percent.
Disability compensation amounts do not increase in direct proportion to disability rating percentages. The largest dollar increase in payment is between the 90 percent ($1,483 per month in 2007) and 100 percent ($2,471 per month in 2007) ratings. A veteran receiving IU who engages in
substantially gainful employment for more than 12 months will have his or her monthly payments drop by at least 40 percent, or $988 (the difference between a 100 and a 90 percent rating), and by as much as 64 percent, or $1,570 (the difference between a 100 and a 60 percent rating). This poses a sudden “cash cliff” that may deter some veterans from trying to reenter the workforce. Most cash support programs try to provide incentives to work by using some sort of sliding scale to ease the transition from being a beneficiary to being ineligible. The Social Security Administration, for example, is conducting a demonstration to test the impact of reducing disability insurance benefits by $1 for every $2 earned for a period of time after a beneficiary earns more than the amount allowed for eligibility, rather than ending benefits suddenly. Social Security Income recipients already may keep half of their earned income exceeding the first $65 of monthly earnings and $20 in general monthly income. Under the Temporary Assistance to Needy Families (TANF) block grant, California allows a family to keep the first $225 it earns a month and reduces the TANF benefit by $1 for every $2 for every additional dollar earned (Coe, 1998).
Recommendation 7-5. VA should implement a gradual reduction in compensation to individual unemployability recipients who are able to return to substantial gainful employment rather than abruptly terminate their disability payments at an arbitrary level of earnings.
Given the substantial difference in payment at the 100 percent and lower rating levels, the committee believes that implementing a gradual reduction may provide a positive incentive for veterans to find and keep employment. Before adopting this recommendation, VA should study whether incentive effects exist and, if so, experiment with alternative ways to encourage veterans to seek and sustain employment.
Coe, N. B., G. Acs, R. I. Lerman, and K. Watson. 1998. Does work pay? A summary of the work incentives under TANF. Washington, DC: Urban Institute. http://www.urban.org/publications/308019.html (accessed December 4, 2006).
Flohr, B. 2006. Total disability individual unemployability. Presentation to the IOM Committee on Medical Evaluation of Veterans for Disability Compensation, Washington, DC, July 7.
GAO (Government Accountability Office). 2006. Veterans’ disability benefits: VA should improve its management of individual unemployability benefits by strengthening criteria, guidance, and procedures. GAO-06-309. Washington, DC: GAO. http://www.gao.gov/new.items/d06309.pdf (accessed May 30, 2007).
Griffith, C. M. 1945. The Veterans Administration. In Doctors at war, edited by M. Fishbein. New York: EP Dutton. Pp. 321–335.
U.S. Congress, Senate, Committee on Veterans’ Affairs. 2005. The rising number of disabled veterans deemed unemployable: Is the system failing? A closer look at VA’s individual unemployability benefit. http://www.access.gpo.gov/congress/senate/ (accessed October 27, 2006).
VA (Department of Veterans Affairs). 2005. Department of Veterans Affairs Office of Inspector General review of state variances in VA disability compensation payments. Report No. 05-00765-137. http://www.va.gov/oig/52/reports/2005/VAOIG-05-00765-137.pdf (accessed March 4, 2007).