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. Page 1 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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. Page 2 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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 Page 3 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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. Page 4 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison 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) Page 5 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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 Page 6 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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. Page 7 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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 Page 8 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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 Page 9 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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. Page 10 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 Page 11 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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 Page 12 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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 Page 13 GAO/HEHS-97-5 VA and Workers’ Compensation Comparison B-274671 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 Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by mail: U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20884-6015 or visit: Room 1100 700 4th St. NW (corner of 4th and G Sts. NW) U.S. General Accounting Office Washington, DC Orders may also be placed by calling (202) 512-6000 or by using fax number (301) 258-4066, or TDD (301) 413-0006. 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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)