oversight

VA Disability Compensation: Comparison of VA Benefits with Those of Workers' Compensation Programs

Published by the Government Accountability Office on 1997-02-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Chairman, Subcommittee
                on Benefits, Committee on Veterans’
                Affairs, House of Representatives


February 1997
                VA DISABILITY
                COMPENSATION
                Comparison of VA
                Benefits With Those of
                Workers’
                Compensation
                Programs




GAO/HEHS-97-5
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-274671

      February 14, 1997

      The Honorable Jack Quinn
      Chairman, Subcommittee on Benefits
      Committee on Veterans’ Affairs
      House of Representatives

      Dear Mr. Chairman:

      Federal and state workers’ compensation programs provide economic
      support for individuals who incur work-related illnesses or injuries, while
      the Department of Veterans Affairs’ (VA) disability compensation program
      provides economic support for certain veterans with service-connected
      conditions. In fiscal year 1995, VA paid a total of about $11.5 billion to the
      approximately 2.2 million veterans on its disability rolls. State workers’
      compensation programs annually paid workers’ compensation indemnity
      benefits ranging from about $14.2 million for approximately 9,750 claims
      filed in Rhode Island to about $4.6 billion for 350,000 claims filed in
      California (see app. I).1 Between July 1, 1995, and June 30, 1996, the
      Department of Labor paid $1.29 billion in 78,873 claims under the Federal
      Employees’ Compensation Act (FECA), one of three workers’ compensation
      programs administered by the Department of Labor.

      We prepared this report at the request of the Chairman of the former
      Subcommittee on Compensation, Pension, Insurance, and Memorial
      Affairs, who asked us to compare (1) the criteria used by the VA disability
      compensation program and federal and state workers’ compensation
      programs to determine compensation and (2) the compensation
      individuals with selected work-related injuries and diseases would receive
      under VA’s disability program and what they would receive for the same
      impairments under FECA.

      To determine the difference between the criteria VA and workers’
      compensation programs use to determine eligibility and compensation, we
      reviewed program policies, literature, and other data compiled on the VA,
      federal, state, and District of Columbia programs, as well as conferred
      with officials from VA and the Department of Labor’s Office of Workers’




      1
       Most recent annual reporting periods for state workers’ compensation programs vary, as shown in
      app. I.



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                   Compensation Programs.2 The discussion of the federal workers’
                   compensation program in this report refers to FECA only.

                   Because the provision of FECA that provides for cash benefits for
                   permanent impairments is more similar to VA’s compensation than the
                   component that provides cash benefits for wage loss, we compared the
                   basic cash benefits payable for six conditions that appear on both the FECA
                   schedule of permanent impairments and the VA disability rating schedule.
                   The six impairments selected were the loss or loss of use of (1) a foot,
                   (2) both ears, (3) a hand, (4) an arm, (5) a leg, and (6) an eye. We selected
                   these impairments because the criteria for each were clear and similar on
                   both schedules.

                   Within the federal government, when comparisons are drawn between
                   military and civilian salaries, the salary for a military rank of O-4, a Major
                   or Lieutenant Commander, has been traditionally considered comparable
                   to the salary of a federal employee at grade 12, step 1, on the general
                   schedule (GS) pay scale.3 Therefore, as agreed with the Subcommittee
                   staff, we based our estimates of the benefits a Major or Lieutenant
                   Commander would receive under FECA at a GS-12, step 1, salary level. To
                   provide a broader perspective of compensation amounts, we used the GS-7,
                   step 1,4 salary level to estimate the compensation someone with a military
                   rank of O-1, Second Lieutenant, would receive under FECA. In addition, we
                   provided information on what someone would receive at the GS-5, step 1,5
                   level and the GS-15, step 10,6 level, the maximum amount of compensation
                   payable under FECA. (See app. I for a detailed description of our benefit
                   calculations.)

                   We did our work from July to November 1996 in accordance with
                   generally accepted government auditing standards.


                   The VA disability compensation program and workers’ compensation
Results in Brief   programs, including FECA, differ with respect to program goals, types of
                   benefits provided, and eligibility requirements for benefits. Both programs

                   2
                    Our comparison of VA’s compensation program and workers’ compensation programs is limited to the
                   programs’ general objectives, design, eligibility requirements, and benefits.
                   3
                    In 1996, an annual salary of $41,926.
                   4
                    In 1996, an annual salary of $23,634.
                   5
                    In 1996, an annual salary of $19,081.
                   6
                    In 1996, an annual salary of $90,090.



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provide cash awards—VA for conditions incurred or aggravated by military
service, and workers’ compensation for work-related injuries or illnesses.
Most workers’ compensation programs provide separate cash payments
for (1) wages lost and (2) permanent impairment, while VA provides
compensation only for service-connected conditions, which need not be
permanent. Unlike the VA program, workers’ compensation programs
emphasize returning employees to work while limiting employers’ liability,
and the vast majority who receive workers’ compensation receive only
medical benefits, not cash awards.

To be eligible for wage loss benefits under workers’ compensation
programs, workers must actually lose all or a portion of their wages for a
specified minimum period of time. Then they receive a portion (usually
66-2/3 percent) of their actual lost wages for the duration of the period that
wages are lost. To collect compensation for permanent impairments,
workers must sustain permanent loss or loss of use of a body part or
function, but they need not lose wages to receive compensation for their
permanent impairments. They receive a portion of their usual wages
(again, often 66-2/3 percent) for the period specified by law.

Unlike workers’ compensation programs, the amount of basic
compensation veterans may receive is established by statute and is not
based on their individual wage loss or usual wages. It is based on the
rating VA’s Schedule for Rating Disabilities assigns to that veteran’s
specific condition. This rating represents the average impairment in
earning capacity that VA determines veterans in general experience with
that condition. All veterans whose conditions are assigned the same rating
receive the same basic benefit amount. Unlike workers’ compensation for
permanent impairments, there is no limit on the length of time veterans
can receive benefits or the total amount they can receive for permanent
conditions.

The monthly cash benefits for permanent impairments under FECA for
employees at the GS-12, step 1, salary level tend to be higher than the
benefits under VA’s disability program for the same types of conditions.
This is likely to be the case for those at higher, but not lower, salary levels
under FECA because workers’ compensation is based on workers’ usual
wages, whereas veterans’ benefits are not. Unless workers’ compensation
continues under the wage loss provision after the cash awards for
permanent impairment end, the amount and present value of VA
compensation could be higher than FECA’s over the long term. This is




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                          because VA benefits are not limited in either the length of time or the total
                          amount that can be paid.


                          Each of the 50 states and the District of Columbia has a workers’
Background                compensation program. These programs vary by state, as each is
                          authorized by its own state law. There are three federal workers’
                          compensation programs including the one authorized by FECA, which
                          covers federal employees. Federal and most state workers’ compensation
                          programs were initially enacted in the first part of the 20th century. VA’s
                          disability compensation program, which was based to some extent on
                          state workers’ compensation programs, was substantially overhauled with
                          the enactment of the War Risk Insurance Act of 1917. The act directed VA
                          to establish a schedule to compensate veterans for the average impairment
                          in earning capacity resulting from injuries or diseases incurred during
                          military service.


                          The FECA program and other workers’ compensation programs differ in
Differences in            purpose and design from VA’s disability compensation program (see table
Program Objectives,       1). Cash benefits under FECA and the workers’ compensation programs and
Design, and Eligibility   those provided under VA’s disability compensation program are provided
                          for different purposes. FECA and other workers’ compensation programs
                          primarily focus on compensating workers for their actual lost wages and
                          permanent impairments resulting from occupational diseases or injuries.
                          In contrast, VA’s disability program focuses on compensating veterans for
                          the average reduction in earning capacity they are expected to experience
                          as a result of service-connected conditions. An overall goal of workers’
                          compensation programs is to return injured employees to work, and in
                          some workers’ compensation programs, benefits are terminated if the
                          worker does not participate in vocational rehabilitation. VA’s disability
                          compensation program focuses on providing monetary compensation for
                          service-connected conditions. VA also provides other services, such as
                          vocational rehabilitation, to eligible veterans. However, veterans are not
                          required to participate in vocational rehabilitation in order to receive
                          compensation.




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                                       B-274671




Table 1: Comparison of VA Disability Compensation and Workers’ Compensation Programs
                                         VA disability compensation             Workers’ compensation
Objectives                              To compensate veterans for physical or         To provide adequate benefits to workers
                                        mental conditions incurred or aggravated       who sustain work-related injuries or
                                        during military service, based on the          diseases, limit employers’ liabilities to
                                        average economic losses that are               workers’ compensation payments, and
                                        expected to result.                            return the injured worker to work.
Types of benefits                       Cash benefits for service-connected            Cash benefits for wage loss.
                                        conditions.
                                                                                       Cash benefits for permanent impairments,
                                        Special monthly compensation for loss or       that is, “schedule awards” for permanent
                                        loss of use of procreative organs, or body     loss or loss of use of body parts or
                                        parts or functions.                            functions.a

                                        Allowances for clothing, attendant, or other   Survivors’ and, in some programs,
                                        special needs.                                 dependents’ benefits.

                                        Dependents’ and survivors’ benefits.           Payment of medical expenses for
                                                                                       work-related injuries or illnesses.
                                        Eligibility for medical care in VA hospitals
                                        and all expenses for vocational                Vocational rehabilitation.
                                        rehabilitation, including stipends.
Eligibility criteria                    For cash and other benefits, existence of a    For cash benefits related to wage loss,
                                        service-connected condition.                   worker must have actually lost wages
                                                                                       because of work-related injury or illness.
                                        Eligibility is not contingent on individual    Some programs require participation in
                                        veteran’s ability to work, amount earned or    vocational rehabilitation if it is necessary for
                                        earning capacity, or participation in          the person to obtain employment again.
                                        vocational rehabilitation.
                                                                                       For cash benefits related to permanent
                                                                                       impairments, worker must have lost or lost
                                                                                       use of certain body parts or functions due
                                                                                       to work-related injury. Workers may be
                                                                                       eligible to receive cash benefits for both
                                                                                       wage loss and permanent impairment for
                                                                                       the same injury, but not concurrently.

                                                                                       For payment of medical expenses, worker
                                                                                       must have a work-related injury or illness.
Basis for compensation amounts          Based on the disability rating (percentage     For wage loss, amount is based on a
                                        evaluation of 10-100%) assigned to a           percentage (usually 66-2/3% without
                                        veteran’s specific condition by VA’s           dependents) of the actual wages lost by
                                        Schedule for Rating Disabilities.              the individual worker as a result of the
                                                                                       work-related injury or illness.
                                        The dollar amount for each disability rating
                                        level is set by law, and all veterans with     For permanent impairments (schedule
                                        conditions assigned the same disability        awards), amount is based on a percentage
                                        rating receive the same basic                  (usually 66-2/3% without dependents) of
                                        compensation amount.                           the worker’s usual wages.
                                                                                                                          (continued)




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                        VA disability compensation                      Workers’ compensation
Compensation limits     No limit on the total dollar amount or time     For wage loss, benefits can be paid for the
                        period over which veterans can receive          duration of the wage loss, but many states
                        compensation.                                   limit the maximum weekly compensation
                                                                        amounts.

                                                                        For permanent impairments (schedule
                                                                        awards), limits are placed on the maximum
                                                                        length of time benefits are payable and the
                                                                        total amount payable.

                                                                        Workers may be eligible to apply for wage
                                                                        loss benefits if they are still unable to work
                                                                        after the schedule award payments are
                                                                        exhausted.

                        a
                          Workers’ compensation programs use a schedule to help determine monetary benefits for
                        selected permanent impairments. Awards appearing on the schedule are referred to as “schedule
                        awards.”




Workers’ Compensation   Workers’ compensation programs attempt to provide adequate benefits to
Programs                injured workers while limiting employers’ liabilities strictly to workers’
                        compensation benefits. These programs provide cash benefits to
                        employees for wage loss and permanent impairments. For selected
                        permanent impairments, the programs use a schedule to determine
                        monetary benefits, which are referred to as “schedule awards.” Workers’
                        compensation also provides medical care benefits and vocational
                        rehabilitation to help employees return to work. In some programs,
                        workers who refuse vocational rehabilitation services when these services
                        are necessary for the person to be employed again may forfeit their right
                        to receive wage-loss benefits. In addition, if an employee dies from a
                        job-related injury or illness, the employee’s dependents can receive
                        survivors’ benefits.

                        The compensation benefits that are paid to workers depend on the nature
                        and extent of their injuries and the ability of injured employees to earn
                        their usual wages. Employees whose injuries are not serious may only
                        receive reimbursement for medical care for work-related injuries or
                        illnesses. Many workers’ compensation claims result only in payment for
                        medical care rather than in monetary awards for lost wages or permanent
                        impairments.

                        Employees whose injuries or illnesses result in lost wages may be entitled
                        to receive wage-loss benefits. Employees whose injuries or illnesses result




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                       in the permanent loss or loss of use of certain body parts or functions are
                       entitled to compensation for permanent impairments. The majority of the
                       monetary benefits that are paid to workers are for wages lost as opposed
                       to permanent impairment. Often wage-loss benefits are paid for temporary
                       disabilities, which may last a relatively short period of time. For example,
                       according to the Department of Labor, for the claims submitted under FECA
                       in fiscal year 1994 for which wage-loss benefits were paid during the first
                       year after submission, the median amount paid was about $4,000. The
                       median time period for which benefits were paid was about 70 days.7

                       No two workers’ compensation programs are exactly alike. Despite the
                       various differences among state, FECA, and the District of Columbia
                       programs, to be eligible for benefits under any of these laws, workers’
                       injuries or occupational diseases must arise out of and occur in the course
                       of employment. These criteria, though used somewhat differently among
                       jurisdictions, generally mean that a worker’s illness or injury must occur in
                       the course of performing his or her job in order to be compensable. To be
                       eligible for monetary benefits under workers’ compensation, workers must
                       experience an actual loss in wages or a permanent impairment.

                       Most states and the District of Columbia require that employees be out of
                       work during a waiting period ranging from 3 to 7 days before benefits for
                       lost wages can be paid.8 FECA requires a 3-day waiting period that begins
                       after the expiration of any “continuation of pay” to which the worker may
                       be entitled. Continuation of pay is a unique feature of FECA whereby FECA
                       authorizes federal agencies to continue paying employees who are absent
                       from work because of work-related traumatic injuries their regular salaries
                       for up to 45 days before the 3-day waiting period begins. Continuation-
                       of-pay benefits are not payable in occupational disease cases. Under state
                       workers’ compensation programs, if an employee is absent from work
                       continuously for 5 to 42 days after the date of injury, he or she is entitled
                       to wage-loss benefits retroactive to the date of injury.9 Under FECA, an
                       employee absent for 14 days after continuation of pay ends is eligible for
                       restoration of benefits withheld during the 3-day waiting period.


VA’s Disability        While workers’ compensation programs attempt to protect the interests of
Compensation Program   both workers and employers, VA’s disability compensation program

                       7
                        The mean amount for this period was about $6,700. The mean length of time, about 100 days.
                       8
                         Workers’ Compensation: Selected Comparisons of Federal and State Laws (GAO/GGD-96-76, Apr. 3,
                       1996).
                       9
                        All statutes except Montana’s provide for wage-loss benefits retroactive to the date of injury.



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               focuses on economic support for veterans. It is designed to provide cash
               benefits to veterans for physical or mental service-connected conditions.
               The benefits paid to veterans depend on the degree to which their specific
               conditions or injuries are believed to reduce the average earning capacity
               of veterans in general with that condition.

               VA’s disability compensation program, like workers’ compensation
               programs, provides survivors’ benefits and vocational rehabilitation.
               Unlike most workers’ compensation programs, vocational rehabilitation is
               optional under VA. Both programs cover medical care, but VA generally
               provides care for veterans through the Veterans Health Administration.
               VA’s program, however, does provide for additional compensation for
               dependents; special needs related to a veteran’s condition; and special
               monthly compensation—statutory awards—for the loss or loss of use of
               certain body parts or functions, or procreative organs. VA also provides
               stipends to veterans in its vocational rehabilitation program in addition to
               monthly disability compensation.

               To be eligible for compensation under VA’s disability compensation
               program, veterans must incur or aggravate injuries or diseases in the line
               of duty or during a period of active military service. Such illnesses and
               injuries are considered service-connected. Unlike workers’ compensation
               programs, a veteran’s injury or illness need not occur because of or in the
               course of actually performing his or her military-related duty to be
               compensable. Members of the military are covered 24 hours a day with
               respect to diseases or injuries they incur, because they are considered on
               duty 24 hours a day.

               A veteran does not have to experience an actual reduction in earning
               capacity or loss in wages to be eligible for disability compensation. Thus,
               like workers’ compensation for permanent impairments, veterans can
               receive compensation even if they are working and regardless of the
               amount they earn.


               Workers’ compensation programs base compensation on workers’ wages
Determining    prior to their injury or the onset of occupational disease. Workers are paid
Compensation   a percentage of their wages or the wages they lose as a result of their
               work-related injury or disease, depending on whether they are being
               compensated for lost wages or permanent impairments. For selected
               permanent impairments, workers’ compensation programs use a schedule
               to determine monetary benefits, or “schedule awards.” For permanent



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                           impairments that do not appear on a schedule, programs may use one or
                           more of three methods to determine compensation. In contrast, VA uses its
                           Schedule for Rating Disabilities to determine the degree of impairment in
                           earning capacity presumed to be associated with specific temporary and
                           permanent conditions. This degree of impairment determines the basic
                           amount of compensation veterans are eligible for. An individual veteran’s
                           actual earnings lost as a result of a condition have no bearing on the
                           compensation amount.


Determining Monetary       If employees are unable to earn their usual wages because of work-related
Awards for Loss of Wages   disabilities, they are compensated for their lost wages. The amount of
Under Workers’             monetary compensation a worker receives under workers’ compensation
                           is calculated by taking a specified percentage—in many jurisdictions,
Compensation               66-2/3 percent—of the worker’s actual wage loss. Thus, the amount of
                           compensation different employees receive for the same disability varies on
                           the basis of their particular wage loss. Most states and the FECA program,
                           however, place minimum and maximum limits on the weekly
                           compensation amounts an individual can receive. Most programs
                           compensate for lost wages for the duration of the wage loss. Workers who
                           become permanently and totally disabled generally receive benefits for
                           life.

                           An employee in Arizona, for example, who earns $600 a week and loses
                           wages as a result of a work-related injury should theoretically receive $400
                           (66-2/3 percent x $600) a week in compensation. However, this employee
                           would actually receive $323.10 a week because this is the maximum
                           weekly benefit amount Arizona allows for wage loss. Under the FECA
                           program, the same employee also would receive 66-2/3 percent (75 percent
                           if the employee has dependents) of his or her lost wages. However, the
                           employee would receive the full $400 because the weekly maximum FECA
                           allows for wage loss is $1,299.38. This same worker would also receive the
                           full $400 in the District of Columbia, which limits maximum weekly
                           benefits to $723.34.


Determining Workers’       For certain permanent impairments, workers’ compensation programs use
Compensation Awards for    a schedule to determine the maximum amount of compensation that can
“Scheduled” Permanent      be awarded. As of January 1995, the FECA, District of Columbia, and most
                           state workers’ compensation programs each maintained a schedule that
Impairments                specified the maximum number of weeks of compensation a worker under
                           their jurisdiction could receive for specific permanent impairments that



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result in the total loss or loss of use of certain members (such as a hand,
arm, or foot), organs, and functions of the body. Benefits for these
permanent impairments are called “schedule awards.” Permanent partial
loss or loss of use of members, organs, or body functions listed on federal
or state schedules is also compensable, but for less than the maximum
number of weeks. The maximum amount of money and period of time
during which compensation may be paid for specific functional losses are
authorized by statute and vary by program. Table 2 shows the variation in
the maximum number of weeks of compensation and dollars payable for
certain permanent impairments among selected states and the FECA
program. The maximum amount and weeks for the states we selected
cover the range of these maximum limits across all states. However, the
actual amount employees are paid is based on their salaries, so many
employees receive less than the maximum.




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Table 2: Maximum Benefit Payments
and Time Periods for Selected                                         Foot                     Both ears
Permanent Impairments for Selected                             Maximum       Maximum      Maximum      Maximum
States and FECA                                                  benefit     number of      benefit    number of
                                     Jurisdiction               amount          weeks      amount         weeks
                                     Arizona                     $55,896          173       $84,006          260
                                     Colorado                     15,600          104        20,850          139
                                     Delaware                     57,150          160        62,508          175
                                     District of Columbia        148,284          205       144,668          200
                                     Georgia                      37,125          135        41,250          150
                                     Illinois                    117,879          155       152,102          200
                                     Kansas                       40,750          125        35,860          110
                                     Maine                        71,442          162        88,200          200
                                     Maryland                    134,865          333       134,865          333
                                     Pennsylvania                131,750          250       137,020          260
                                     Texas                        42,200          125        50,400          150
                                     Virginia                     60,000          125        48,000          100
                                                                                     a                          a
                                     Washington                   52,566                     60,076
                                     Wisconsin                    42,250          250        36,504          216
                                     Wyoming                      28,600          100        22,880           80
                                     FECA                        266,373          205       259,876          200




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          Hand                 Arm at shoulder                           Leg at hip                            Eye
m    Maximum     Maximum     Maximum           Maximum              Maximum         Maximum          Maximum         Maximum
 f     benefit   number of     benefit         number of              benefit       number of          benefit       number of
s     amount        weeks     amount              weeks              amount            weeks          amount            weeks
0     $70,113         217     $84,006                  260             $70,113              217         $42,003              130
9       15,600        104       31,200                 208              31,200              208          20,850              139
5       78,581        220       89,297                 250              89,297              250          71,438              200
0     176,494         244     225,682                  312             208,321              288         115,734              160
0       44,000        160       61,875                 225              61,875              225          41,250              150
0     144,496         190     228,153                  300             209,140              275         121,681              160
0       48,900        150       73,350                 225              65,200              200          39,120              120
0       94,815        215     118,629                  269              94,815              215          71,442              162
3     134,865         333     162,000                  400             162,000              400         134,865              333
0     187,085         355     216,070                  410             216,070              410         144,925              275
0       50,400        150       67,200                 200              67,200              200          33,600              100
0       72,000        150       96,000                 200              84,000              175          48,000              100
 a                       a                                  a                                   a                                 a
        67,585                  75,095                                  75,095                           30,038
6       67,600        400       84,500                 500              84,500              500          46,475              275
0       34,892        122       42,900                 150              38,610              135          26,844                  94
0     317,049         244     405,407                  312             374,221              288         207,901              160
                              a
                                Law provides for payment of fixed sums for specified injuries in monthly or lump-sum payments,
                              under certain circumstances.

                              Source: U.S. Department of Labor, Employment Standards Administration, Office of Workers’
                              Compensation Programs, State Workers’ Compensation Laws (Washington, D.C.: Department of
                              Labor, Jan. 1996).



                              For the types of impairments included on a workers’ compensation
                              schedule, whether total or partial, the injured or disabled worker is
                              awarded a percentage of his or her usual wages for no greater than the
                              number of weeks specified on the schedule. For example, under FECA, an
                              employee may receive 66-2/3 percent of his or her salary or wages if there
                              are no dependents (75 percent if there are) for up to a maximum of 312
                              weeks for the total loss or loss of use of an arm. Accordingly, the loss or
                              loss of use of an arm provides the same number of weeks of benefits to all
                              injured federal workers, but workers with lower wages will receive a
                              lesser amount of monetary benefits. If a worker loses 50-percent use of an
                              arm, he or she would likely receive 66-2/3 percent of his or her salary or
                              wages for 156 weeks, which is 50 percent of the maximum number of
                              weeks allowed. Workers with permanent partial impairments continue to
                              receive compensation for their loss until they receive the full amount they



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                          are eligible for, even if they are working. If the worker is unable to return
                          to work or earn his or her usual wages after receiving the maximum
                          amount allowable, the worker may apply for wage-loss benefits. Under
                          FECA, workers cannot collect compensation for wage loss and permanent
                          impairment concurrently.


Determining Workers’      For permanent impairments that are not included in the schedule,
Compensation Awards for   commonly called “nonscheduled” or “unscheduled” injuries, one or more
“Nonscheduled”            of three methods may be used to determine the compensation amount.
                          Nonscheduled injuries are normally injuries to the trunk, internal organs,
Permanent Impairments     nervous system, and other body systems that are not included in the list of
                          injuries found in District of Columbia or state statutes that address
                          workers’ compensation. FECA does not provide schedule awards for
                          permanent impairments that do not appear on its schedule. The states and
                          the District of Columbia may base awards for nonscheduled injuries on
                          (1) functional limitation or impairment, (2) wage loss, (3) loss of
                          wage-earning capacity, or (4) some combination of these three.

Impairment Method         The impairment approach compares the worker’s condition with that of a
                          person with no impairment or with that of someone at the opposite end of
                          the scale—a “totally disabled” person—and produces a rating of
                          impairment as a percentage. Thus, it is basically an extension of the
                          schedule applied to injuries not listed. For example, in a state that equates
                          a person with no impairments to 500 weeks of benefits, a worker
                          determined to have a 25-percent impairment may receive a percentage of
                          his or her usual wages for 125 weeks (25 percent x 500).

                          Under this method, workers with the same permanent impairment receive
                          the same number of weeks of compensation, even if the impairment is
                          more or less disabling for different individuals. The same type of back
                          injury, for example, would provide the same number of weeks of benefits
                          to a professor and a carpenter, even though the professor is able to return
                          to work and suffers only a temporary loss of wages, while, by contrast, the
                          carpenter may be unable to return to work and suffers a permanent loss in
                          wages. However, when a worker suffers a permanent loss of wages, he or
                          she may apply for wage-loss benefits under workers’ compensation.

Wage-Loss Method          Under the wage-loss method, workers are compensated for a percentage
                          of the actual loss of earnings that stems from their work-related illness or
                          injury. The amount of benefits paid to workers depends upon the extent to
                          which postinjury earnings are affected by the impairment or condition.



                          Page 14                    GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
                                B-274671




                                The degree of functional impairment alone has little or no bearing on the
                                amount of benefits paid.

Loss-of-Wage-Earning-Capacity   This approach compensates the worker for the anticipated or projected
Method                          loss of earning capacity as a result of his or her permanent disability. This
                                is similar to what VA’s schedule conceptually does. However, VA’s schedule
                                reflects the impact a condition is presumed to have on the average earning
                                capacity among all veterans with that condition as opposed to its impact
                                on each individual veteran’s earnings. States using this approach assess
                                the seriousness of the worker’s medical condition; consider such factors
                                as prior education, work experience, and other personal characteristics
                                that affect one’s ability to obtain and retain employment; and estimate the
                                worker’s loss in earning capacity in percentage terms. States normally
                                express total earning capacity in terms of a specified number of weeks.
                                For example, in a state that equates total loss of earning capacity with 600
                                weeks of benefits, a worker with a 20-percent loss of earning capacity
                                would receive a percentage of his or her projected earning capacity for 120
                                weeks (20 percent x 600).

Combination of Methods          States can also use some combination of the three basic methods. For
                                example, Texas pays workers benefits for permanent disabilities on the
                                basis of their functional impairment for a limited number of weeks.
                                However, workers can also receive additional benefits for loss of wages
                                after their impairment benefits are exhausted. Only workers whose
                                functional impairment is rated at least at 15 percent or higher are eligible
                                for these supplemental benefits. Wisconsin also pays impairment benefits
                                on the basis of loss of functional capacity for permanent disabilities for a
                                limited number of weeks. However, if the worker does not return to work
                                by the end of this period at the preinjury earnings level, additional benefits
                                are based on loss of wage-earning capacity.


Determining Disability          The amount of compensation veterans are awarded for their
Compensation Amounts            service-connected conditions is based on a percentage evaluation,
Under VA’s Program              commonly called the disability rating, which VA’s Schedule for Rating
                                Disabilities assigns to a veteran’s specific condition. The veteran receives
                                the specific benefit amount the law sets for that disability rating level.
                                Unlike workers’ compensation, VA does not base compensation on each
                                individual veteran’s salary or wage loss, nor does it base compensation on
                                how each veteran’s earning capacity is actually affected by his or her
                                service-connected condition. Veterans with the same condition at the same
                                level of severity usually receive the same basic cash benefit.



                                Page 15                    GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
B-274671




The rating schedule contains medical criteria and disability ratings. The
medical criteria consist of a list of diagnoses, organized by body system,
and a number of levels of medical severity specified for each diagnosis.
The schedule assigns a disability rating to each level of severity associated
with a diagnosis. These disability ratings, which are supposed to reflect
the average impairment in earning capacity associated with each level of
severity, range from 10 percent to 100 percent10 and correspond to specific
dollar amounts of compensation set by law.

For example, VA has determined that the loss of a foot during military
service results in a 40-percent impairment in earning capacity, on average,
among all veterans with this injury. These veterans, therefore, are entitled
to a 40-percent disability rating whether this injury actually reduces their
earning capacity by more than 40 percent or does not reduce it at all. In
1996, all veterans having conditions with a disability rating of 40 percent
received basic compensation of $380 per month.11 In 1996, under VA’s
disability program, a veteran received basic compensation of $91 per
month, or $1,092 annually, for a condition rated at 10 percent, and up to
$1,870 per month, or $22,440 annually, for a condition rated at 100 percent
(see table 3).

In contrast to many workers’ compensation programs, VA’s program does
not place any limits on the total amount of monetary benefits veterans can
receive or the time period for which they can receive these benefits.
Veterans can receive disability compensation for their service-connected
conditions for life.




10
 A veteran can also receive a 0-percent noncompensable rating that may be increased to a
compensable rating of 10 percent or more if the veteran’s condition worsens. A 0-percent rating
generally means that VA has determined that a veteran has a condition that can be classified as
service-connected, but it is not severe enough to qualify for monetary compensation on the basis of the
medical criteria in the schedule. Some veterans with a 0-percent rating receive special monthly
compensation under the VA disability program. On the basis of 1994 data, VA estimated there were
about 1.2 million veterans who were rated at 0 percent and were not receiving disability compensation.
11
  This does not include the special monthly compensation a veteran would be entitled to for loss or
loss of use of a body part.



Page 16                            GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
                                      B-274671




Table 3: 1996 VA Compensation Rates
                                                                                                                                 Monthly
                                      Disability (percent)                                                                          rate
                                      10                                                                                                 $91
                                      20                                                                                                 174
                                      30                                                                                                 266
                                      40                                                                                                 380
                                      50                                                                                                 542
                                      60                                                                                                 683
                                      70                                                                                                 862
                                      80                                                                                                 999
                                      90                                                                                            1,124
                                      100                                                                                           1,870a
                                      a
                                        Additional amounts may be paid when eligible veterans who are rated at 100-percent disability
                                      have conditions that are so severe they require special assistance or aid, such as in-home care.

                                      Source: VA, Federal Benefits for Veterans and Dependents, 1996 ed., VA pamphlet 80-96-1
                                      (Washington, D.C.: VA, 1996).




Cash Benefit Comparisons              Monthly benefits for workers with higher earnings under FECA for selected
                                      scheduled permanent impairments will likely be higher than VA’s monthly
                                      disability compensation because schedule award amounts for permanent
                                      impairments under the workers’ compensation programs are based on
                                      workers’ wages. FECA monthly cash benefits for workers with lower
                                      salaries may not be higher, however, than VA cash benefits. For example,
                                      for the total loss or loss of use of an arm, a federal employee without
                                      dependents at a GS-12, step 1, salary level would receive about $2,341 a
                                      month for a maximum of 72 months (312 weeks) under FECA. Under VA’s
                                      disability compensation program, this same person would receive $1,124 a
                                      month. However, a federal employee at the GS-5, step 1, salary level would
                                      receive about $1,065 a month (see table 4).




                                      Page 17                           GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
                                          B-274671




Table 4: Monthly Compensation Payable for Selected Permanent Impairments Under VA and FECA at Specific Salary
Levels
                                                                                      FECA compensation
                                                                                           GS-5,          GS-7,         GS-12,          GS-15,
                                                                                          step 1         step 1         step 1          step 10
                                                                                         ($19,081       ($23,634       ($41,926        ($90,090
                                                                             VA          annually)      annually)      annually)       annually)
                                                                           Monthly         Monthly         Monthly        Monthly        Monthly
Permanent impairment (loss or loss of use of)                              amounta         amount          amount         amount         amount
Foot                                                                            $380         $1,065          $1,320         $2,341         $5,030
Both ears                                                                      1,870           1,065          1,320          2,341             5,030
Hand                                                                              862          1,065          1,320          2,341             5,030
Arm at shoulder                                                                1,124           1,065          1,320          2,341             5,030
Leg at hip                                                                     1,124           1,065          1,320          2,341             5,030
One eye                                                                           380          1,065          1,320          2,341             5,030
                                          a
                                              Based on the rating VA’s schedule assigns to the highest level of severity for each condition.



                                          Comparisons of initial monthly benefit payments alone under FECA and VA
                                          do not provide a complete picture of the differences in compensation
                                          amounts, for several reasons. FECA payments for schedule awards are
                                          limited to 6 years or less, whereas VA disability payments are made to
                                          disabled veterans for the duration of the impairment, so the payment of
                                          several decades’ worth of benefits is not uncommon. FECA payments and
                                          VA disability payments can be—and usually are—increased over time. A
                                          dollar paid to a recipient today is worth more than a dollar paid at some
                                          future date, in terms of both value to the recipient and cost to the
                                          government, because a dollar received today can be invested to provide
                                          more than a dollar’s benefit in the future. For these reasons, a comparison
                                          of the present value, also known as the lump-sum equivalent, of potential
                                          total payment under each program provides a better indication of the
                                          relative value of benefits under these two programs (see app. II for a
                                          detailed description of benefit calculations).

                                          In the long run, at the GS-12, step 1, salary level and below, compensation
                                          under VA’s disability program is generally higher than FECA compensation
                                          for selected permanent impairments. For example, the schedule award
                                          benefit for the total loss or loss of use of an arm for an employee at the
                                          GS-12, step 1, salary level is limited to a maximum of $186,20312 ($540 x 312



                                          12
                                            The maximum compensation any federal worker without dependents can receive under FECA for
                                          this impairment is $400,335 (66-2/3 percent of a GS-15, step 10, weekly salary ($1,161) for 312 weeks,
                                          adjusted for cost-of-living allowance).



                                          Page 18                               GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
B-274671




weeks, adjusted for cost-of-living allowance) under FECA.13 The present
value, or lump-sum equivalent, of this amount would be $158,561.
Assuming that a veteran is compensated for the loss or loss of use of an
arm for 30 years, using the 1996 compensation levels and adjusting for
future increases in benefits, the veteran would receive $756,474, and the
present value would be $289,365.

In general, for selected permanent impairments, the maximum amount of
benefits a federal worker at the GS-15, step 10, salary level would receive
also would be lower than the benefits received under VA. However, the
present value of benefits at this salary level would be higher under FECA for
some of the impairments we looked at (see tables 5 and 6).




13
  If a worker is unable to work or earn his or her usual salary after receiving the maximum amount
payable for his or her permanent impairment, the worker, under FECA and in most states, also may be
eligible for wage-loss benefits for the duration of the wage loss.



Page 19                           GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
                                      B-274671




Table 5: Maximum Amount of Benefits
for Permanent Impairments Under                                                                      GS-5, step 1
FECA for Selected Salary Levels                                                                   ($19,081 annually)
                                      Permanent impairment            Maximum number of        Maximum        Present
                                      (loss or loss of use of)      weeks of compensation       amount          value
                                      Foot                                             205       $53,482      $48,646
                                      Both ears                                        200        52,098       47,504
                                      Hand                                             244        64,666       57,358
                                      Arm at shoulder                                  312        84,826       72,233
                                      Leg at hip                                       288        77,642       67,015
                                      One eye                                          160        41,029       38,366




                                      Page 20                    GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
                                                 B-274671




t     GS-7, step 1 ($23,634 annually)                   GS-12, step 1 ($41,926 annually)                 GS-15, step 10 ($90,090 annually)
e   Maximum amount           Present value Maximum amount                          Present value Maximum amount                      Present value
6            $66,309               $60,313                    $117,399                   $106,784               $252,408                   $229,585
4             64,593                    58,897                 114,362                     104,277                245,878                   224,195
8             80,175                    71,114                 141,949                     125,907                305,191                   270,699
3            105,170                    89,558                 186,203                     158,561                400,335                   340,907
5             96,264                    83,088                 170,435                     147,107                366,435                   316,279
6             50,870                    47,568                  90,065                      84,219                193,639                   181,070
                                                 Note: All benefit amounts are for beneficiaries without dependents.



 Table 6: Long-term VA Compensation
 Payable for Selected                                Permanent              Disability
 Service-Connected Conditions                    impairment (loss or         ratinga
                                                   loss of use of)          (percent)           Compensation                  Present value
                                                                                              30 years       40 years       30 years       40 years
                                                 Foot                                 40      $255,747       $433,316        $97,828       $117,330
                                                 Both ears                           100     1,258,546      2,132,373        481,418        577,389
                                                 Hand                                 70       580,143        982,944        221,916        266,155
                                                 Arm at shoulder                      90       756,474      1,281,704        289,365        347,051
                                                 Leg at hip                           90       756,474      1,281,704        289,365        347,051
                                                 One eye                              40       255,747        433,316         97,828        117,330
                                                 Note: Amounts do not include special monthly compensation, allowances for dependents, or any
                                                 other monetary benefits to which veterans may be entitled.
                                             a
                                               These ratings represent the disability rating VA’s rating schedule assigns to the highest level of
                                             severity for each condition.




                                             In commenting on a draft of this report, VA stated that comparisons of VA’s
 Agency Comments                             disability compensation program with other workers’ compensation
 and Our Evaluation                          programs are not meaningful because the programs are so dissimilar. VA
                                             also stated that its compensation program is the best method for providing
                                             monetary benefits to people disabled during military service. Throughout
                                             this report we have recognized the differences and, in some cases, the
                                             similarities among the VA disability and workers’ compensation programs’
                                             objectives, components, and characteristics. VA’s comments are included
                                             as appendix III. VA also provided technical comments on the draft report,
                                             which we incorporated as appropriate.




                                                 Page 21                            GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
B-274671




The Department of Labor also reviewed a draft of this report and provided
technical comments, which we have also included as appropriate.


We are sending copies of this report to the Subcommittee’s Ranking
Minority Member, other interested congressional committees and
subcommittees, and the Secretaries of Veterans Affairs and Labor. Copies
will also be made available to others upon request.

This report was prepared under the direction of Clarita A. Mrena, Assistant
Director. Other GAO contacts and staff acknowledgments are listed in
appendix IV. If you have any questions about this report, please contact
me on (202) 512-7101 or Ms. Mrena on (202) 512-6812.

Sincerely yours,




David P. Baine
Director, Veterans’ Affairs and
  Military Health Care Issues




Page 22                   GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
Page 23   GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
Contents



Letter                                                                                              1


Appendix I                                                                                         26

Total Claims Filed and
Cash Benefits Paid
Under Workers’
Compensation, by
State, for Time Period
Specified
Appendix II                                                                                        28

Assumptions
Underlying the
Comparison of
Benefits Under FECA
and the VA Disability
Compensation
Program
Appendix III                                                                                       29

Comments From the
Department of
Veterans Affairs
Appendix IV                                                                                        30

GAO Contacts and
Staff
Acknowledgments
Tables                   Table 1: Comparison of VA Disability Compensation and                      5
                           Workers’ Compensation Programs




                         Page 24                 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
Contents




Table 2: Maximum Benefit Payments and Time Periods for                    12
  Selected Permanent Impairments for Selected States and FECA
Table 3: 1996 VA Compensation Rates                                       17
Table 4: Monthly Compensation Payable for Selected Permanent              18
  Impairments Under VA and FECA at Specific Salary Levels
Table 5: Maximum Amount of Benefits for Permanent                         20
  Impairments Under FECA for Selected Salary Levels
Table 6: Long-term VA Compensation Payable for Selected                   21
  Service-Connected Conditions




Abbreviations

FECA       Federal Employees’ Compensation Act
GS         general schedule
VA         Department of Veterans Affairs


Page 25                 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
Appendix I

Total Claims Filed and Cash Benefits Paid
Under Workers’ Compensation, by State, for
Time Period Specified

                                                           Total claims
                                                               filed for     Total amount
                                                                   cash            of cash
               State            Time period                    benefits      benefits paid
               Alabama          10/1/94 to 9/30/95               33,854      $203,684,515
               Alaska           1/1/93 to 12/31/93                9,398        57,195,670
                                                                       a                 a
               Arizona          7/1/94 to 6/30/95
               Arkansas         1/1/95 to 12/31/95               18,556        75,194,516
               California       7/1/94 to 6/30/95              350,000       4,560,000,000
                                                                                         a
               Colorado         7/1/94 to 6/30/95                44,392
                                                                                         a
               Connecticut      7/1/94 to 6/30/95                58,494
                                                                                         a
               Delaware         1/1/93 to 12/31/93                4,800
                                                                       a
               Florida          7/1/94 to 6/30/95                             547,073,870
               Georgia          1/1/94 to 12/31/94               52,313       197,072,414
                                                                       a
               Hawaii           1/1/94 to 12/31/94                            197,579,662
                                                                       a
               Idaho            7/1/93 to 6/30/94                              81,606,749
                                                                       a                 a
               Illinois         7/1/93 to 6/30/94
                                                                       a                 a
               Indiana          7/1/92 to 6/30/93
                                                                       a                 a
               Iowa             7/1/94 to 6/30/95
                                                                       a                 a
               Kansas           7/1/94 to 6/30/95
                                                                       a                 a
               Kentucky         7/1/94 to 6/30/95
               Louisiana        1/1/94 to 12/31/94               24,293       295,800,000
                                                                                         a
               Maine            1/1/94 to 12/31/94                7,237
                                                                       a                 a
               Massachusetts    7/1/93 to 6/30/94
               Michigan         1/1/94 to 12/31/94               88,804       956,022,370
               Minnesota        1/1/94 to 12/31/94               37,100       514,400,000
               Mississippi      1/1/93 to 12/31/93               19,417        96,345,077
                                                                       a                 a
               Missouri         7/1/92 to 6/30/93
                                                                       a
               Montana          7/1/94 to 6/30/95                              92,243,679
               Nebraska         7/1/94 to 6/30/95                16,538        77,202,313
                                                                       a                 a
               Nevada           7/1/93 to 6/30/94
                                                                                         a
               New Hampshire    7/1/94 to 6/30/95                12,087
                                                                       a
               New Jersey       1/1/94 to 12/31/94                            452,500,000
               New Mexico       1/1/94 to 12/31/94                7,172        70,737,374
                                                                       a
               New York         4/1/93 to 3/31/94                            1,500,746,000
               North Carolina   7/1/94 to 6/30/95                94,053       234,379,982
               North Dakota     7/1/93 to 6/30/94                 3,745        40,314,979
               Ohio             1/1/95 to 12/31/95               69,564      1,099,770,677
                                                                       a                 a
               Oklahoma         1/1/94 to 12/31/94
               Oregon           1/1/94 to 12/31/94               31,530       232,230,000
                                                                               (continued)


               Page 26               GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
Appendix I
Total Claims Filed and Cash Benefits Paid
Under Workers’ Compensation, by State, for
Time Period Specified




                                                                 Total claims
                                                                     filed for   Total amount
                                                                         cash          of cash
State                           Time period                          benefits    benefits paid
                                                                             a
Pennsylvania                    1/1/94 to 12/31/94                               1,707,243,691
Rhode Island                    1/1/93 to 12/31/93                      9,752       14,230,000
South Carolina                  7/1/94 to 6/30/95                      18,612      223,988,480
                                                                             a               a
South Dakota                    7/1/93 to 6/30/94
                                                                                             a
Tennessee                       1/1/93 to 12/31/93                     41,248
                                                                                             a
Texas                           1/1/94 to 12/31/94                     64,586
                                                                                             a
Utah                            7/1/94 to 6/30/95                      13,585
                                                                             a
Vermont                         7/1/93 to 6/30/94                                   65,000,000
                                                                             a               a
Virginia                        1/1/94 to 12/31/94
Washington                      7/1/94 to 6/30/95                      74,219      840,330,000
West Virginia                   7/1/94 to 6/30/95                      19,613     386,665,344b
Wisconsin                       1/1/94 to 12/31/94                     73,941      196,880,772
                                                                             a
Wyoming                         7/1/94 to 6/30/95                                   33,219,687

a
    Not available.
b
    Includes self-insured amounts, that is, pay orders issued.

Source: U.S. Department of Labor, Employment Standards Administration, Office of Workers’
Compensation Programs, State Workers’ Compensation Administration Profiles (Washington,
D.C.: U.S. Government Printing Office, Oct. 1995).




Page 27                               GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
Appendix II

Assumptions Underlying the Comparison of
Benefits Under FECA and the VA Disability
Compensation Program
                     This appendix presents the specific assumptions that we adopted to
                     estimate the present value, or lump-sum equivalent, benefits of FECA and VA
                     disability compensation for this report.


                     The monthly amount of benefits paid under FECA and VA are adjusted
Benefit Escalation   periodically in order to compensate partially or fully for the effects of
Rate                 inflation. We were told by a VA official that recent increases in VA benefits
                     have been consistent with Social Security Administration cost-of-living
                     increases. Accordingly, we assumed that VA disability benefits will increase
                     at an annual rate of 4 percent. This is consistent with the Social Security
                     Administration’s long-range projections of the annual increases in the
                     Consumer Price Index. We also assumed that FECA benefits would increase
                     at the same annual rate.


                     Consistent with standard practice, we used a discount rate of 6.6 percent.
Discount Rate        This represents the cost of borrowing to the federal government (that is,
                     the 30-year Treasury rate) as of December 1996.




                     Page 28                   GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
Appendix III

Comments From the Department of
Veterans Affairs




               Page 29   GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
Appendix IV

GAO Contacts and Staff Acknowledgments


                  Clarita Mrena, Assistant Director, (202) 512-6812
GAO Contacts      Shelia Drake, Evaluator-in-Charge, (202) 512-7172


                  Connie D. Wilson, Senior Evaluator, collected a major portion of the
Staff             evidence presented, and Timothy J. Carr, Senior Economist, provided the
Acknowledgments   present value calculations of FECA and VA benefit payments. Ed Tasca,
                  Senior Evaluator, provided technical assistance on workers’ compensation
                  programs.




(105747)          Page 30                  GAO/HEHS-97-5 VA and Workers’ Compensation Comparison
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