Hon. Daniel L. Cooper, VADM (Ret.)
Mr. Chairman and members of the Committee, it is my pleasure to be here today to describe the budget formulation process used to project the long-term costs of our veterans compensation program. I am pleased to be accompanied today by Mr. Jimmy Norris, Chief Financial Officer of the Veterans Benefits Administration (VBA).
VBA is responsible for administering a wide range of benefits and services for veterans, their families, and their survivors. At the heart of our mission is the Disability Compensation Program, which provides monthly benefits to veterans who are disabled as a result of injuries or illness incurred or aggravated during their military service. VBA’s role in serving the veteran population is extensive and complex. Our budget formulation process ensures sufficient resources to provide the benefits to those who have sacrificed so much in defense of our freedom.
Our Compensation and Pension Model has proven to be a reliable method for projecting veterans’ compensation benefits. I will discuss our mandatory budget process, including the primary methods and data we use in estimating the costs of compensation benefits.
Disability Compensation Benefit Model
As of the end of FY 2007, over 2.8 million veterans of all periods of service were receiving VA compensation benefits. This is a net increase of more than 500,000 veterans since 2000. In 2007, these veterans were paid $29 billion in compensation benefits, an increase of $13.5 billion over the 2000 level.
To adapt to the changing trends in veterans’ compensation benefit payments, VBA developed a benefits budget forecasting model for veterans of all periods of service. The model uses a combination of historical data, current experience, and workload and performance projections. Our current model was developed in 2004 in conjunction with the Office of Management and Budget, the Congressional Budget Office, VA’s Office of the Actuary, and several other internal VA offices. The working group established to develop the current model determined that the most effective means of forecasting must be based on veterans’ historical degree-of-disability statistics.
Detailed historical data is the basis for projecting both the caseload and the average amount of benefits to be paid for the next ten years. Our model incorporates specific data for approximately 99 percent of the beneficiaries dating back to 1992. By comparing data from one year to the next, we are able to recognize developing changes in our recurring caseload and predict trends for both accessions and terminations from the compensation benefit program. It is important to note that 95 percent of VA’s compensation payments is issued in recurring monthly payments to veterans; the remaining 5 percent encompasses retroactive and one-time benefit payments.
To project future compensation obligations, observed trends in historical data are combined with educated forecast assumptions. Two of the more important assumptions used to estimate future caseload are projected workload and accession rates. Projected workload comes from the discretionary budget formulation process and begins with an estimate of incoming workload (new claims). Projected incoming claims, anticipated inventory, future performance assumptions and productivity targets are used to derive the volume of both original and reopened cases expected to be completed each year. The accession rate is the percent of completed cases that are awarded benefits and is applied to projected workload to estimate new compensation cases.
To forecast obligations, we must also estimate the average amount of benefits that will be paid to each beneficiary. A portion of the Increases in average payments can be specifically attributed to annual COLAs. However, the total increase is also impacted by significant increases in the average degree of veterans’ disabilities, the number of veterans determined to be individually unemployable and receiving benefits at 100 percent rate, and veterans receiving Special Monthly Compensation. The average degree of disability for all beneficiaries increased 26 percent over the past ten years, from 30.9 percent in 1996 to 38.9 percent at the end of 2006, with resultant increases in average benefit payments.
Once the mandatory benefits projection is developed, it is adjusted based on recent program changes, which might include newly enacted legislation, regulations, or recent court decisions. Our latest ten-year plan projects annual veterans’ compensation payments to increase by $27 billion over the next ten years, continuing the trend of the past decade and nearly doubling our current obligations for the compensation program by the year 2017.
Projections of Current Conflict
Projections of incoming claims workload is one of the key assumptions in the formulation of our mandatory budget requests. The number of veterans filing disability compensation claims has increased every year since 2000. Disability claims from returning Afghanistan and Iraq conflict veterans, as well as from veterans of earlier periods of war, increased from 578,773 in FY 2000 to 838,141 in FY 2007. For FY 2007 alone, this represents an increase of over 259,000 claims or 45 percent over the 2000 base year. Claims workload itself is a function of a number of variables, such as the size of the active duty force. It should be noted that resubmitted claims for increased benefits from veterans already on our disability compensation rolls represent about 54 percent of the total claims volume.
The budget model analyzes changes to individual benefit payments. It does not forecast by war period or specific area of military assignment. This method has been determined to be reliable for projecting total compensation costs, but does not allow us to provide long-term disability compensation cost projections specifically for OIF/OEF veterans.
As a result of VA’s current efforts to enhance data sharing with DOD, we now have a means to identify OIF/OEF combat veterans and are able to begin to analyze their benefits usage. The most recent data file from DoD includes veterans separated though May 2007. This data file was compared to VA records through September 2007. This match identified 223,564 OIF/OEF veterans who have filed claims for disability benefits either prior to or following their OIF/OEF deployment (approximately 30 percent of the 754,911 OIF/OEF servicemembers separated through May 2007). Of these 223,564 veterans, 198,522 have received decisions on their claims (89 percent) and 25,042 have claims pending (11 percent). Of the 198,522 OIF/OEF veterans who have received decisions, 181,151 were found to have service-connected disabilities (91 percent).
Projecting future demand and long-term costs for the OIF/OEF conflict, or any specific period of service, remains extremely difficult for a number of reasons.
- Many OIF/OEF veterans had earlier periods of service, and their injuries or illnesses could have been incurred either prior to or subsequent to their OIF/OEF deployment. VA does not maintain data that would allow us to attribute veterans’ disabilities to a specific period of service or deployment. Therefore we are unable to identify which OIF/OEF veterans filed a claim for disabilities incurred during their actual overseas OIF/OEF deployment.
- VA has significantly expanded its outreach efforts to separating servicemembers to ensure they are fully informed about their VA benefits. Over the last five years, VBA military services coordinators conducted over 38,000 briefings attended by over a 1.5 million active duty and reserve personnel and their family members. Additionally, through the Benefits Delivery at Discharge Program, servicemembers are assisted in filing for disability benefits prior to separation. We believe these efforts have been very successful in encouraging separating servicemembers with disabilities to submit disability compensation claims. However, the impact of these additional efforts on future application trends and benefits usage is not known.
- VBA lacks historical data on benefits claims activity by veterans of prior wars or conflicts on which to base projections of benefits usage for OIF/OEF veterans. VBA does not have data to show how many veterans of prior wars or conflicts ever filed claims or received benefits specifically due to service in combat theatres. The only comparative data available are the numbers and percentages of veterans currently receiving benefits by era of service (e.g. World War II Era or Vietnam Era). First-time claimants continue to be added to our compensation rolls many years after military service, primarily as a result of diseases added to the list of conditions presumed to be related to exposure to Agent Orange while serving in Vietnam and post-traumatic stress disorder. We do not have a basis for determining whether service in Iraq and Afghanistan will result in similar claims patterns.
The compensation budget formulation process is based on a complex combination of historical data, current experience, workload assumptions, external influences, and program judgment. The budget evolves as these factors and inputs are refined, revised, and revisited. But, throughout all this complexity and change, the prime motivation is fulfilling our mission to help disabled veterans receive the benefits they have earned through their service to our nation.
Mr. Chairman, this concludes my statement. I will be happy to respond to any questions that you or other members of the Committee might have.