United States General Accounting Office GAO Report to the Chairman, Subcommittee on Compensation, Pension, Insurance and Memorial Affairs, Committee on Veterans’ Affairs, House of Representatives January 1997 VA DISABILITY COMPENSATION Disability Ratings May Not Reflect Veterans’ Economic Losses GAO/HEHS-97-9 United States GAO General Accounting Office Washington, D.C. 20548 Health, Education, and Human Services Division B-274058 January 7, 1997 The Honorable Terry Everett Chairman, Subcommittee on Compensation, Pension, Insurance and Memorial Affairs Committee on Veterans’ Affairs House of Representatives Dear Mr. Chairman: The Department of Veterans Affairs’ (VA) disability program is required by law to compensate veterans for the average loss in earning capacity in civilian occupations that results from injuries or conditions incurred or aggravated during military service. These injuries or conditions are referred to as “service-connected” disabilities. Veterans with such disabilities are entitled to monthly cash benefits under this program even if they are working and regardless of the amount they earn. In fiscal year 1995, VA paid about $11.3 billion to approximately 2.2 million veterans who were on VA’s disability rolls at that time. Over the past 50 years, the number of veterans on the disability rolls has remained fairly constant. During this period, the disability rolls were at their lowest level in fiscal year 1946 with a total of about 1.9 million veterans and at their highest during fiscal years 1978 through 1984 with a total of about 2.3 million veterans each year. The amount of compensation veterans with service-connected conditions receive is based on the “percentage evaluation,” commonly called the disability rating, that VA assigns to these conditions. VA uses its “Schedule for Rating Disabilities” to determine which rating to assign to a veteran’s particular condition. VA is required by law to readjust the schedule periodically on the basis of “experience.” Since the 1945 version of the schedule was developed, questions have been raised on a number of occasions about the basis for these disability ratings and whether they reflect veterans’ current loss in earning capacity. This report responds to your request for information that would enable the Subcommittee to assess the need for a comprehensive study of the economic validity of VA’s rating schedule. It describes (1) the basis for the disability ratings assigned to conditions in the current schedule; (2) socioeconomic changes that have occurred since the original version of the schedule was developed that may have influenced the earning Page 1 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 capacity of disabled veterans; (3) the results of a previous study that examined the validity of ratings in the schedule; (4) VA’s efforts to help ensure that the ratings do reflect disabled veterans’ average impairment in earning capacity; and (5) the advantage of basing ratings in the schedule on actual loss in earnings, and approaches that could be used to estimate this loss. To develop this information, we analyzed legislation and reviewed documents on the history of the program and had discussions with current and former VA officials and representatives from veterans service organizations (VSO) familiar with the program’s history. We also reviewed the results of the President’s Commission on Veterans’ Pensions (known as the Bradley Commission) study and the Economic Validation of the Rating Schedule (ECVARS). We discussed the ECVARS and its results with VA’s Office of Inspector General and Compensation and Pension officials and former VA officials familiar with this study. To identify possible approaches VA could use to evaluate and update its rating schedule to help ensure that ratings reflect the average reduction in veterans’ earning capacity, we reviewed literature on research design and methods and reviewed the ECVARS methodology. We also obtained the views of Bureau of the Census, Social Security Administration, and Bureau of Labor Statistics officials, economists, statisticians, and research methodologists. We did our work from April 1995 to December 1996 in accordance with generally accepted government auditing standards. The disability ratings in VA’s current schedule are still primarily based on Results in Brief physicians’ and lawyers’ judgments made in 1945 about the effect service-connected conditions had on the average individual’s ability to perform jobs requiring manual or physical labor. During fiscal year 1995, disabled veterans’ basic monthly benefit ranged from $89 for conditions rated at 10 percent to $1,823 for conditions rated at 100 percent. Veterans rated at 100 percent who have special needs, however, could receive up to a total of $5,212 monthly. Although the ratings in the schedule have not changed substantially since 1945, dramatic changes have occurred in the labor market and in society since then. The results of an economic validation of the schedule conducted in the late 1960s indicated that ratings for many conditions did Page 2 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 not reflect the actual average loss in earnings associated with them. Therefore, it is likely that some of the ratings in the schedule do not reflect the economic loss experienced by veterans today. Hence, the schedule may not equitably distribute compensation funds among disabled veterans. VA has done little since 1945 to help ensure that disability ratings correspond to disabled veterans’ average loss in earning capacity. Despite the results of the economic validation study, VA’s efforts to maintain the schedule have concentrated on improving the appropriateness, clarity, and accuracy of the descriptions of the conditions in the schedule rather than on attempting to ensure that the schedule’s assessments of the economic loss associated with these conditions are accurate. For example, some of the criteria have been revised to describe more accurate measures of disease severity or to recognize the effects of medical and technological advances on particular disabilities. Basing disability ratings at least in part on actual earnings loss rather than solely on judgments of loss in functional capacity would help to ensure that veterans are compensated to an extent commensurate with their economic losses and that compensation funds are distributed equitably. For example, according to the schedule, loss of the use of a hand has a disability rating of 60 percent for the nonpredominant hand and 70 percent for the predominant hand because such a loss is expected to reduce veterans’ earning capacity on average by 60 and 70 percent, respectively. However, VA’s economic validation study in the late 1960s showed that the reduction in earning capacity that veterans who had lost the use of a hand experienced was, on average, closer to 40 percent. In contrast, veterans who had a disability rating of 70 percent for pronounced psychotic conditions were found, on average, to have experienced a reduction in earnings closer to 80 percent. Our work demonstrates that there are generally accepted and widely used approaches to statistically estimate the effect of specific service-connected conditions on veterans’ average earnings. These estimates could be used to set disability ratings in the schedule that are appropriate in today’s socioeconomic environment. It could cost between $5 million and $10 million to collect the data that produce these estimates, a small fraction of the over $11 billion VA paid in disability compensation to veterans in fiscal year 1995. Page 3 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 The law directs VA to compensate veterans for their service-connected VA’s Disability physical or mental conditions according to a schedule of disability ratings, Compensation which represents the average impairment in earning capacity that results Program from these conditions. The first schedule was developed in 1919 and has undergone many changes since then. The Schedule for Rating Disabilities includes a list of physical and mental conditions with disability ratings assigned to each. These ratings are used to determine the amount of compensation that veterans are entitled to receive on the basis of their specific conditions. VA’s Schedule for Rating Federal law (38 U.S.C. 1110 and 1155) requires VA to “adopt and apply a Disabilities schedule of ratings of reductions in earning capacity from specific injuries or combination of injuries” to determine the amount of compensation disabled veterans are entitled to receive. The ratings are to be based, “as far as practicable, upon the average impairments of earning capacity resulting from such injuries in civil occupations.” The law gives the chief administrator of VA the discretion to define “average impairments in earning capacity” and the authority to readjust the schedule to help ensure that disability ratings reflect VA’s experience. The War Risk Insurance Act of 1917 called for the creation of the first rating schedule. The schedule was developed in 1919 and provided an early framework for the basic design of the current compensation and pension programs for disabled veterans. It underwent major revisions in 1921, 1925, 1933, and 1945, becoming more comprehensive with each major revision (see fig. 1). The last major revision to the schedule was made in 1945. Page 4 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Figure 1: History of VA’s Schedule for Rating Disabilities 1917 • War Risk Insurance Act called for the creation of a rating schedule. • War Risk Insurance Act amendments called for adoption of a rating 1918 schedule based on average impairment in earning capacity. 1919 1920 1921 • Rating schedule revised. • Schedule contained guidelines for rating disabilities. 1922 • Schedule divided into sections: neuropsychiatric and surgical disabilities; eye, ear, nose, and throat difficulties; and dental 1923 conditions. 1924 1925 • Rating schedule revised. • Schedule followed the California workmen’s compensation system of 1926 rating disabilities (not based on average impairment in earning 1927 capacity for all occupations). • Schedule included general policy for rating disabilities. 1928 • Schedule contained index of diseases and injuries (beginning of diagnostic codes). 1929 • Instructions added on how to use the schedule. 1930 1931 1932 1933 • Rating schedule revised. • VA reverted to the method of “averaging” for all occupations. 1934 • Revised ratings were based on the average impairment in earning 1935 capacity. • Schedule added “multiple disabilities.” 1936 • Gynecological conditions added to schedule. 1937 1938 1939 1940 1941 1942 • Rating schedule revised to reflect advances in science, technology, and medicine. 1943 • New diagnostic codes added. • Disabilities indexed numerically under systems. 1944 • Disabilities identified by a code series. 1945 • Schedule serves as benchmark for current rating decisions. Page 5 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 The Schedule for Rating Disabilities 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 percentage evaluation, commonly referred to as a disability rating, to each level of severity associated with a diagnosis. The disability rating conceptually reflects the average impairment in earning capacity associated with each level of severity. For example, VA presumes that the loss of a foot as a result of military service results in a 40-percent impairment in earning capacity, on average, among veterans with this injury. All veterans who lose a foot as a result of military service, therefore, are entitled to a 40-percent disability rating whether this injury actually reduces their earning capacity by more than 40 percent or not at all. Ratings for individual diagnoses in the schedule range from 10 percent to 100 percent in gradations of 10 (see table 1).1 Table 1: Number of Veterans Receiving Disability Compensation During FY Number of 1995, by Degree of Disability Degree of disability (percent) veterans 0 18,588a 10 886,279 20 365,241 30 308,377 40 183,679 50 108,583 60 106,798 70 60,770 80 37,488 90 16,592 100 143,280 Total 2,235,675 a While 0-percent ratings are normally noncompensable, some veterans may receive special monthly compensation for such things as the loss of a procreative organ. Source: VA, Annual Report of the Secretary of Veterans Affairs—Fiscal Year 1995 (Washington, D.C.: VA, Mar. 1996). 1 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; however, it is not severe enough to qualify for monetary compensation on the basis of the medical criteria specified 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. Page 6 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Disability Compensation The amount of compensation veterans are awarded for their disabilities is Amounts based on (1) the disability rating the schedule assigns to a veteran’s specific condition and (2) the specific benefit amount the Congress sets for each of these disability rating levels. To determine what basic compensation a veteran with a service-connected condition is due, first the veteran’s condition is medically evaluated to determine its severity. Then VA compares the results of the evaluation with the medical criteria in the schedule to determine what disability rating is warranted given the severity of the veteran’s condition. The veteran will receive the amount the Congress has set for that disability rating. The Congress has adjusted the benefit amounts for each disability rating level annually. In fiscal year 1995, the basic monthly benefit amount ranged from $89 for conditions assigned a rating of 10 percent to $1,823 for conditions assigned a rating of 100 percent (see table 2). Although the primary purpose of VA’s disability compensation program is compensation for impairment in earning capacity, the program also provides for additional monthly compensation over and above the amount based on the schedule, for loss of “physical integrity.” Loss of physical integrity is defined as tissue loss, loss of body parts, or any disease or injury that makes an individual less functionally whole. The law (38 U.S.C. 1114) provides for additional monthly compensation for such things as the loss of a hand, foot, eye, or procreative organ. VA regulations also allow veterans to receive “extra-schedular” awards when VA determines that the severity of a veteran’s condition is not adequately captured by the rating the schedule assigns to it. Extra-schedular awards allow veterans to receive compensation for a rating higher than the one specified in the schedule for their condition. In a case of unemployability, for example, if the criteria in the schedule indicate that a veteran’s condition warrants at least a 60-percent disability rating but VA determines that, on the basis of that veteran’s unusual circumstances, he or she is unable to obtain and sustain gainful employment, VA can raise the compensation for that veteran to the amount provided for a 100-percent rating. VA regulations also allow veterans to be compensated for “social inadaptability” or “social impairment” to the extent it affects industrial adaptability. Social inadaptability contemplates those abnormalities of conduct, judgment, and emotional reactions that affect economic adjustment, that is, that impair earning capacity. Page 7 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Table 2: VA Disability Compensation Rates During FY 1995, by Degree of Monthly Disability Degree of disability (percent) rate 10 $89 20 170 30 260 40 371 50 529 60 666 70 841 80 974 90 1,096 100 $1,823a Note: Effective December 1, 1995, these rates were increased to the following: 10 percent—$91; 20 percent—$174; 30 percent—$266; 40 percent—$380; 50 percent—$542; 60 percent—$683; 70 percent—$862; 80 percent—$999; 90 percent—$1,124; and 100 percent—$1,870. a When veterans suffer from conditions that result in additional needs, such as special assistance in the home, they can receive up to $5,212 a month in disability compensation, including the basic benefit. Source: VA, Federal Benefits for Veterans and Dependents, 1995 ed., VA Pamphlet 80-95-1 (Washington, D.C.: VA, 1995). In 1995, about 70 percent of the 2.2 million veterans on the rolls were being compensated for conditions with disability ratings of 30 percent or less for a total of nearly $2.8 billion, or about 25 percent of total benefits paid to veterans that year. Those rated 100 percent accounted for only 6 percent of those on the disability rolls that year and received $3.7 billion, or about 32 percent of the total amount of benefits paid (see table 3). Page 8 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Table 3: Total Compensation Paid During FY 1995 to Disabled Veterans, Percentage by Degree of Disability Degree of of total disability Number of Percentage of Total amount (percent) veterans all veterans amount paid paid 0 18,588 0.8 $ 14,917,200 0.1a 10 886,279 39.6 950,119,200 8.4 20 365,241 16.3 746,307,600 6.6 30 308,377 13.8 1,068,338,400 9.4 40 183,679 8.2 913,666,800 8.1 50 108,583 4.8 762,907,200 6.7 60 106,798 4.8 1,256,940,000 11.1 70 60,770 2.7 892,731,600 7.9 80 37,488 1.7 659,898,000 5.8 90 16,592 0.7 330,303,600 2.9 100 143,280 6.4 3,707,430,000 32.8 Total 2,235,675 100.0b $11,303,559,600 100.0b a While 0-percent ratings are normally noncompensable, some veterans may receive special monthly compensation for such things as the loss of a procreative organ. b Totals may not add to 100 percent because of rounding. Source: VA, Annual Report of the Secretary of Veterans Affairs—Fiscal Year 1995 (Washington, D.C.: VA, Mar. 1996). Disability ratings in the current schedule may not reflect the actual Disability Ratings May economic loss that disabled veterans, on average, now experience. While Not Reflect Economic the law contains no definition of “impairments in earning capacity,” ratings Loss assigned to conditions in the schedule are based more on judgments of the loss in functional capacity, rather than in earning capacity, resulting from these conditions. Advances in medicine and technology and changes in the economy and public policy and in the field of rehabilitation since 1945 raise questions about whether ratings for specific conditions set 50 years ago reflect the average loss in earning capacity today among veterans with these conditions. In addition, studies conducted in the mid-1950s and the late 1960s concluded that the ratings in the schedule did not accurately reflect the reduction in earning capacity that disabled veterans experienced at those times and that the ratings needed to be updated. Page 9 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Impairments in Earning The law gives the Secretary of Veterans Affairs the authority to determine Capacity Not Defined in what is meant by “average impairments in earning capacity” in civilian the Law occupations. Although VA’s Economic Validation of the Rating Schedule (ECVARS) in the late 1960s defined reduction in earning capacity as “the loss or lowering of average income from wages or employment,” VA has not defined in regulations what is meant by average impairment in earning capacity other than to generally describe it as an economic or industrial handicap. Beginning at least as early as 1923, when assigning a rating to a condition, VA used the loss in physical or overall functional capacity resulting from that condition (or some other proxy, such as the average veteran’s ability to compete for employment in the job market) as an indicator of average impairment in earning capacity. According to an official in VA’s Office of General Counsel, the average impairment in earning capacity in civilian occupations means the impairment of an individual’s ability to engage in any type of work available in the economy. Functional Capacity Used The actual loss in earnings associated with a service-connected condition as an Indicator of Earning has not been considered when determining the degree to which that Capacity condition impairs earning capacity. Nor has it been considered when determining the rating that condition should be assigned in the schedule. In 1945, when the framework for the current schedule was developed, the job market was oriented toward physical labor, and physical capacity was expected to have a major influence on earning capacity. At that time, a Disability Policy Board, consisting of doctors and lawyers, set the disability ratings for the conditions contained in the schedule. According to a former Director of VA’s Compensation and Pension Service, VA’s Department of Medicine and Surgery, now the Veterans Health Administration, provided the Board with a medical monograph—a detailed description of etiology and manifestations—for each of the conditions included in the schedule at that time. The Board used these monographs to estimate the relative effects different levels of severity of a condition have on the average veteran’s ability to compete for employment in the job market. It set disability ratings on this basis. Thus, ratings for conditions that limited physical ability, such as the loss of the use of an arm or leg, were expected to greatly impair veterans’ average earning capacity and were given a relatively high rating. Since 1945, VA has made many revisions to the schedule. The revisions have included modifications to medical criteria associated with the Page 10 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 ratings, changes in the maximum convalescence period allowed before requiring reevaluation of the condition, and addition of more levels of evaluations or ratings. The revisions, however, have not been based on empirical data on the effects certain conditions have on veterans’ earnings. According to VA Compensation and Pension officials, the basic procedure used to determine what disability rating to assign to a condition has not changed since 1945. This determination has been and continues to be based on the judgment of individuals with knowledge and expertise in this area. When adjusting ratings for conditions already in the schedule or assigning ratings to new conditions added to the schedule, VA’s goal has been to maintain the internal consistency of the schedule over time. In doing so, VA tries to ensure that new or adjusted ratings are consistent with the ratings of analogous conditions and reasonable relative to all other conditions. As a result, the ratings in the 1945 schedule have been, in effect, the benchmark for all the ratings adjusted and added since then, and VA officials acknowledge that the ratings in the current schedule are consistent with the ratings developed in 1945. Changes in the Economy Even if functional capacity accurately approximated disabled veterans’ and Society Since 1945 reduction in earning capacity in 1945, changes have occurred since then Indicate That Ratings May that have implications for how accurately those ratings reflect disabled veterans’ reduction in earning capacity today. Numerous technological and Need Updating medical advances have taken place, as well as economic changes, that have created more potential for people to work with some conditions and less potential for people to work with other conditions. There have also been changes in the labor market and social attitudes toward the disabled that may affect disabled veterans’ ability to work. Since 1945, medical and technological advances have enabled individuals with some types of disabilities to obtain and sustain employment. Advances in the management of disabilities, like medication to control mental illness or computer-aided prosthetic devices that return some functioning to the physically impaired, have helped reduce the severity of the functional loss caused by both mental and physical disabilities. Electronic communications and assistive technologies, such as synthetic voice systems, standing wheelchairs, and modified automobiles and vans, have given people with certain types of disabilities more independence and potential to work. Page 11 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 There has also been a shift in the U.S. economy since 1945 from predominantly labor and manufacturing to skill- and service-based jobs. In the 1960s, earning capacity became more related to a worker’s skills and training than to his or her ability to perform physical labor. Advancements in technology, including computers and automated equipment, following World War II and the Korean Conflict reduced the need for physical labor. The goods-producing sector’s share of the economy—mining, construction, and manufacturing—declined from about 44 percent in 1945 to about 21 percent in 1994. The service-producing industry’s share, on the other hand—such areas as wholesale and retail trade; transportation and public utilities; federal, state and local government; and finance, insurance, and real estate—increased from about 57 percent in 1945 to about 80 percent in 1994. While the shift to a more service-oriented economy may have had a positive effect on job opportunities for veterans with physical disabilities, it may have had the opposite effect for those with some mental impairments. However, new treatments and medications have made it possible for individuals with some mental illnesses to function more fully today. About 20 percent of the veterans on the disability rolls as of September 30, 1995, were receiving compensation for psychiatric and neurological conditions, whereas 80 percent were being compensated for general medical or surgical conditions, or physical disabilities (see table 4). Page 12 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Table 4: Distribution of Veterans on the Rolls in FY 1995, by Degree of Total Psychiatric and General medical and Disability and Major Medical Category Degree of disability number of neurological conditions surgical conditions (percent) veterans Number of Number of veterans Percent veterans Percent a a 0 18,588 18,588 100 10 886,279 111,002 13 775,277 87 20 365,241 23,852 7 341,389 93 30 308,377 70,225 23 238,152 77 40 183,679 27,147 15 156,532 85 50 108,583 39,774 37 68,809 63 60 106,798 19,487 18 87,311 82 70 60,770 22,430 37 38,340 63 80 37,488 11,061 30 26,427 70 90 16,592 4,873 29 11,719 71 100 143,280 97,203 68 46,077 32 Total 2,235,675 427,054 19 1,808,621 81 a Not applicable. Source: VA, Annual Report of the Secretary of Veterans Affairs—Fiscal Year 1995 (Washington, D.C.: VA, Mar. 1996). In addition, in recent decades there has been a trend toward greater inclusion of and participation by people with disabilities in the mainstream of society. Changes in public attitudes toward people with disabilities have resulted, over the past 2 decades, in public policy requiring the removal of environmental and social barriers that prevent the disabled from fully participating in the workforce as well as in their communities. The Americans With Disabilities Act of 1990 (ADA), which supports the full participation of people with disabilities in society, fosters the expectation that people with disabilities can work. The act prohibits employers from discriminating against qualified individuals with disabilities and requires employers to make reasonable work place accommodations for these individuals. Two major studies have been conducted since the implementation of the Studies Have Found 1945 version of the schedule to determine whether the schedule That Ratings Need constitutes an adequate basis for compensating veterans with Updating service-connected conditions. One was conducted by a presidential commission in the mid-1950s and a second by VA in the late 1960s. Both concluded, for various reasons, that at least some disability ratings in the Page 13 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 schedule did not accurately reflect the average impairment in earning capacity among disabled veterans and needed to be adjusted. The President’s Commission on Veterans’ Pensions, commonly called the Bradley Commission, was created in 1955 “to carry out a comprehensive study of the laws and policies pertaining to pension, compensation, and related nonmedical benefits” for veterans. As part of this study, the Commission examined VA’s Schedule for Rating Disabilities. To determine whether the schedule at that time constituted an adequate and equitable basis for compensating disabled veterans, the Commission examined (1) the medical criteria in the schedule and (2) the disability ratings associated with these medical criteria. On the basis of the results of a survey designed to obtain the views of medical specialists nationwide, the Commission concluded that the medical criteria in the schedule did not reflect the advances that had been made in medicine since 1945. The Commission also asked 169 physicians whether they believed the ratings fairly represented the average impairment of earning capacity resulting from the various degrees of severity of physical impairment. Forty percent of the 153 physicians who responded believed that the ratings fairly represented average impairment in earning capacity, 40 percent believed the ratings did not, and 20 percent did not respond or gave vague responses. Many of those who believed the schedule’s ratings in general fairly represented average impairment of earning capacity, however, believed that the ratings for the lower disability percentages (usually below 30 percent) did not. The Commission’s comparison of the earnings and income of disabled veterans with the earnings and income of nondisabled veterans and others indicated that, with the exception of totally disabled veterans and elderly disabled veterans, there was little difference in combined median annual earned income of these groups. The Commission concluded that the amount of disability compensation seemed to make up for the difference in overall income between the two groups. But this compensation was not based on the average impairment in earnings capacity. The Commission observed that no studies had been conducted to measure the actual impairment in earnings capacity among the disabled, and the standard used to set disability ratings in the schedule was geared to the impairment of the individual who performs manual labor. Thus, because “functional physical capacity” has a major effect on a laborer’s ability to work, the Committee concluded that physical impairment has been VA’s predominant standard for setting disability ratings. Page 14 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 In addition to presenting the results of its study, the Commission pointed out that advances have been made in surgery, prosthetics, medical treatment, and rehabilitation since the schedule was revised in 1945 and that these advances could change the extent to which physical impairment affects earning capacity. The Commission also noted that the job market has shifted from predominantly manual labor jobs to more clerical and service-oriented jobs. Thus, the Commission concluded that the rating schedule tended to be less representative of the average impairment in earning capacity of veterans who performed nonmanual labor jobs. The Commission’s overall recommendation with regard to the schedule was that it should be revised thoroughly on the basis of factual data to ensure that it reflects veterans’ average reduction in earning capacity, as required by law. The Commission stated that the basic purpose of the program is economic maintenance and, therefore, it is appropriate to compare periodically the average earnings of the working population and the earnings of disabled veterans, and update the schedule accordingly to help ensure that veterans are adequately compensated for the average reduction in earnings they experience as a result of their service-connected conditions. In the late 1960s, VA conducted the ECVARS in response to the Bradley Commission recommendations and recurring criticisms that ratings in the schedule were not accurate. This study was designed to estimate the average loss in earning capacity among disabled veterans by calculating the difference between the earnings of disabled veterans, by condition, and the earnings of nondisabled veterans, controlling for age, education, and region of residence.2 The ECVARS is the most comprehensive assessment of the validity of the ratings ever done. On the basis of the results, VA concluded that of the approximately 700 diagnostic codes reviewed, the ratings for 330 overestimated veterans’ average loss in earnings due to their conditions, and about 75 underestimated the average loss among veterans. For example, for the disarticulation of an arm (amputation through the joint where the shoulder and arm join), VA estimated a 60-percent rating more closely approximated veterans’ average reduction in earning capacity than the 90-percent rating listed in the schedule. VA also estimated that a 40-percent rating was more representative of veterans’ average reduction in earning capacity for the disarticulation of the thigh (with the loss of extrinsic pelvic girdle muscles) than the 90 percent that was listed in the schedule. Some of the ratings that underestimated veterans’ reduction in earning capacity were 2 See app. I for a description of the scope and methodology of the ECVARS. Page 15 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 assigned to mental conditions. For example, VA estimated that pronounced neurotic symptoms so severe that they would impair a veteran’s ability to obtain or retain employment would result in an 80-percent reduction in earning capacity as opposed to the 70 percent listed in the schedule. VA has not systematically reviewed and adjusted the disability ratings in VA Has Not Taken the schedule to reflect the current average impairment in earning capacity. Adequate Steps to Although the ECVARS found that many of the ratings in the schedule did not Help Ensure That correspond to the actual earnings loss experienced by veterans, no changes were made to the schedule on the basis of these findings. Current Ratings Reflect Loss revisions VA is making to the schedule focus on updating medical criteria, in Earnings not on ensuring that disability ratings accurately represent the effect that service-connected conditions have on the average earning capacity of disabled veterans, and few adjustments are being made to ratings in conjunction with these revisions. When making adjustments to the ratings or adding conditions to the schedule, VA relies on its experience implementing the schedule and the responses it receives from the proposed rule-making process to help ensure that ratings are appropriate. Ratings Were Not Changed On the basis of the results of the ECVARS, VA proposed adjustments to the on the Basis of the Results disability ratings and produced a revised schedule that included ratings it of ECVARS believed more accurately represented the reduction in earning capacity that veterans experience as a result of their service-connected conditions. However, VA did not adopt this revised schedule. According to VA and VSO officials, the schedule was not adopted because VA believed that the Congress did not support it. Since the ECVARS was conducted, VA has not done another comprehensive study to systematically measure the effect of service-connected conditions on earnings. Current Update Does Not In a 1988 report,3 we reviewed the medical criteria in VA’s rating schedule Assess the Extent to Which to determine whether they were sufficiently current to ensure veterans Ratings Reflect Economic were being given accurate and uniform percentage ratings. We found that VA could not ensure that veterans were given accurate and uniform ratings Loss because the schedule had not been adjusted to incorporate recent medical advances at that time. We recommended that VA update the medical criteria in the schedule and keep them current. In response to these recommendations, VA is in the process of systematically updating the 3 Need to Update Medical Criteria Used in VA’s Disability Rating Schedule (GAO/HRD-89-28, Dec. 29, 1988). Page 16 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 medical criteria in the rating schedule. VA is reviewing each major body system in the schedule to ensure that the medical criteria for each diagnosis are up to date. The objectives of the current update are to make the criteria for assigning the disability ratings clearer, more objective, and accurate. To date, VA has revised the medical criteria for 8 of the 16 body systems contained in the schedule. Revisions generally consist of such things as (1) wording changes for clarification or reflection of current medical terminology, (2) addition of alternative criteria, (3) addition of medical conditions not in the schedule, (4) deletion of conditions that through advances in treatment are no longer considered disabling, and (5) reductions in the time period for reevaluating unstable conditions.4 Few revisions involved the disability ratings themselves. Of about 68 diagnostic codes subject to revision in the first 4 body systems VA reviewed, the ratings for 12 were modified in some way. Of these 12 modifications, 3 resulted in obvious reductions in ratings, while none resulted in obvious increases.5 None of these reductions in ratings, however, will result in lower ratings for veterans currently on the disability rolls. Federal law (38 U.S.C. 1155) specifies that changes in the rating schedule will, in no event, reduce a veteran’s rating in effect when a change occurs, unless the veteran’s condition has improved. When a revision in the medical criteria or the addition of a new condition to the schedule requires VA to adjust or set ratings for conditions, these adjustments are generally based on the judgments of VA’s Compensation and Pension staff. VA’s goal is to maintain the internal consistency of the schedule over time by trying to ensure that new or adjusted ratings are consistent with the ratings of analogous conditions and reasonable relative to all others. For example, when VA added endometriosis to the schedule, it tried to find a condition already listed in the schedule that was analogous or comparable in terms of the physical impairment. On the basis of the Veterans Health Administration’s medical monograph for this condition, VA determined that the most severe outcome of having endometriosis would be a hysterectomy, which was already in the schedule under another diagnosis and has a disability rating of 50 percent. VA, therefore, set the maximum evaluation for endometriosis at 50 percent. 4 See app. II for examples of the types of changes made as a result of the current update of the rating schedule. 5 See app. III for a summary of the types of changes made to the rating schedule as a result of updating 4 of the 16 body systems. Page 17 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 VA then set disability ratings for the less severe symptoms associated with endometriosis. In setting the rates for the less severe symptoms, VA Compensation and Pension personnel told us that they used their best judgment or experience, or both, to estimate the amount of time an individual might lose from work as a result of this condition. VA set the rating at 30 percent for moderate symptoms and 10 percent for milder symptoms (see table 5). Table 5: Disability Ratings for Endometriosis Disability rating Symptoms (percent) Lesions involving bowel or bladder confirmed by laparoscopy, pelvic pain or heavy bleeding not controlled by treatment, and bowel or bladder symptoms 50 Pelvic pain or heavy or irregular bleeding not controlled by treatment 30 Pelvic pain or heavy or irregular bleeding requiring continuous treatment for control 10 VA’s Process for Setting When it proposes changes to the schedule, VA relies on its experience in and Adjusting Ratings implementing the schedule, on feedback from veterans and VSOs, and on Does Not Factor in Loss in the comments it receives from the public. According to VA officials, the feedback they have received from veterans and VSOs over time about the Earnings schedule and VA’s experience implementing it indicate that veterans appear to be generally satisfied with the ratings in the schedule. The VSO officials we contacted believe that VA’s disability rating schedule is a well-constructed document that has withstood the test of time. They also believe that ratings in the schedule generally represent the average loss in earning capacity among disabled veterans. Under the proposed rule-making process, proposed changes to the schedule are published in the Federal Register, and veterans and others are given the opportunity to comment on these changes before they are adopted. According to VA officials, veterans have made relatively few comments on changes currently proposed, which they believe suggests that current changes are acceptable. Because the schedule appears to be widely accepted, VA officials believe that the process they use is adequate to ensure that ratings fairly accurately represent veterans’ average impairment in earning capacity, and therefore there is no need to further assess their appropriateness. Page 18 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Although VA has chosen not to do so, using an estimate of actual loss in Using Data on earnings to approximate loss in earning capacity would help VA make Earnings Has certain that veterans are compensated to an extent commensurate with Advantages in the economic losses attributable to service-connected conditions. This would also help to ensure that disability compensation funds are equitably Determining distributed among disabled veterans given today’s work environment. Impairment in Unlike judgments about loss in functional capacity, estimates of actual loss in earnings are objective and economic indicators of loss in earning Earning Capacity capacity. When the 1945 schedule was developed, no study was done to determine whether ratings based on loss in functional capacity correlated with disabled veterans’ loss in earnings. Even if ratings did correlate with loss in earnings at that time, in 1956 the Bradley Commission found that they did not. The Commission recognized that the basic purpose of the program was economic maintenance and that it was appropriate to compensate disabled veterans on the basis of the average reduction in earnings they experience as a result of their service-connected conditions. It recommended updating the schedule periodically, primarily by using estimates of the average loss in earnings experienced by disabled veterans. The results of the ECVARS again illustrated that functional loss, even if it had correlated with economic loss in 1945, did not accurately approximate the economic loss associated with service-connected conditions in the late 1960s. When ratings based on functional capacity were compared with the estimated loss in earnings experienced by disabled veterans, they often did not coincide. There are several advantages to using empirical data, as opposed to judgments, to determine impairment in earning capacity. Estimates of the loss in earnings resulting from service-connected conditions based on empirical data are objective and more reliable than individuals’ judgments about the effect these conditions may have. Such judgments can vary greatly, as the results of the Bradley Commission’s survey of physicians illustrate. Half of the physicians who responded to the survey believed the ratings in the schedule fairly represented the average loss in earning capacity resulting from the various degrees of severity of physical impairment. The other half disagreed. Judgments about the effect certain conditions may have on the ability to function, work, or earn money do not allow VA to determine whether the program is compensating disabled veterans to an extent commensurate with their economic loss. If VA compared estimates of loss in earnings, Page 19 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 based on empirical data, for specific conditions with the ratings for these conditions, it could objectively determine whether the program was achieving this goal and was distributing disability compensation equitably. It Is Feasible to Base The average impairment in earning capacity associated with specific Estimates of Impairment in service-connected conditions can be estimated by calculating the Earning Capacity on difference between what veterans with those conditions earn, on average, and what they would have earned if they did not have those conditions. Earnings Loss The average loss in earnings associated with specific service-connected conditions can be determined by using widely applied research designs for estimating the effect of one variable on another. A number of decisions would have to be made, however, with respect to an overall methodology for a study that would produce these estimates, and a number of options are related to each. Each option has implications for the cost of such a study and the validity of its results. Our work suggests that it could cost between $5 million and $10 million to conduct a study like this. Widely Applied Some generally accepted research designs for estimating the effect of one Approaches Can Be Used variable on another can be used to estimate the average loss in earnings to Quantify the Effect of associated with specific service-connected conditions. These designs are widely applied. While no study that measures the effect of Service-Connected service-connected conditions on earnings loss will give absolutely Conditions on Earnings definitive results, many studies have demonstrated that it is possible to produce acceptable estimates of the impact of one variable on another. These designs have been used in policy analyses to examine the factors affecting the growth of Social Security Administration disability programs,6 the role vocational rehabilitation plays in the tendency of disabled persons to return to work,7 and the impact of job training on employment among ex-offenders.8 6 K. Rupp and D. Stapleton, “Determinants of the Growth in the Social Security Administration’s Disability Programs—An Overview,” Social Security Bulletin, 58:4 (Winter 1995), pp. 43-70. 7 J.C. Hennessey and L. S. Muller, “The Effect of Vocational Rehabilitation and Work Incentives on Helping the Disabled-Worker Beneficiary Back to Work,” Social Security Bulletin, 58:1 (Spring 1995), pp. 15-28. 8 M.A. Finn and K.G. Willoughby, “Employment Outcomes of Ex-Offender Job Training Partnership Act (JTPA) Trainees,” Evaluation Review, 20:1 (Feb. 1996), pp. 67-83. Page 20 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Such designs have also been used in many studies that specifically measured the impact of such things as military service,9 functional impairments,10 and medical conditions such as epilepsy11 and arthritis12 on wages and earnings. VA’s ECVARS is an example of one of these. It relied on a design that is often used in policy analysis and program evaluation to estimate the effect of service-connected conditions on the average earnings of veterans on the VA disability rolls at that time. Given that other studies have successfully employed methods for quantifying the effect functional impairment and specific disabilities have on earnings, these methods can also be applied to the question of how service-connected conditions affect disabled veterans’ earning capacity. Options for a Design and In deciding how to conduct a study to estimate the effect of disability on Methodology for earning capacity, questions related to such things as scope and study Estimating Loss in design, data collection, and analysis would need to be addressed. The feasibility and cost of a study designed to estimate the effect of Earnings service-connected conditions on earnings would depend on the options chosen relative to each of these. Following are some options we identified during our review of the literature and discussions with experts. Study Scope The study’s scope—how comprehensive and specific it should be—would need to be determined. Decisions about the scope will affect the overall cost and feasibility of the study and the validity of the results. The study could attempt to measure every condition’s effect on earnings at each disability rating level or could select only certain conditions, depending on (1) the extent to which a condition is thought to represent or be represented by other conditions in the schedule or (2) the number of veterans on the rolls with that condition. The more conditions examined individually, the more costly and complicated the study is likely to be. However, estimates for individual conditions are more valid if those conditions are examined individually. 9 R.R. Bryant, V.A. Samaranayake, and A. Wilhite, “The Effect of Military Service on the Subsequent Civilian Wage of the Post-Vietnam Veteran,” The Quarterly Review of Economics and Finance, 33:1 (Spring 1993), pp. 15-31. 10 M.L. Baldwin, L.A. Zeager, and P.R. Flacco, “Gender Differences in Wage Losses From Impairments: Estimates From the Survey of Income and Program Participation,” The Journal of Human Resources, 29:3 (Summer 1994), pp. 865-87. 11 M. Famulari, “The Effects of a Disability on Labor Market Performance: The Case of Epilepsy,” Southern Economic Journal, 58:4 (Apr. 1992), pp. 1072-87. 12 T. Pincus, J.M. Mitchell, and R.V. Burkhauser, “Substantial Work Disability and Earnings Losses in Individuals Less Than Age 65 With Osteoarthritis: Comparisons With Rheumatoid Arthritis,” Journal of Clinical Epidemiology, 42:5 (1989), pp. 449-57. Page 21 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Study Design It is possible to quantify the effect of service-connected conditions on earnings by estimating the difference between the actual earnings of veterans on the disability rolls and what their earnings would have been if they did not have their service-connected conditions. The actual earnings of disabled veterans can be measured directly. If it were possible to control which veterans would incur service-connected conditions, veterans could be randomly assigned to groups with or without a disability, and the difference between the earnings of these two groups would constitute the effect of disability on earnings. Since this is not possible, what disabled veterans would have earned if they were not disabled has to be approximated. The earnings of the disabled prior to the onset of their disabilities, or the earnings of a group of individuals who were not disabled, could be used for this approximation. Given the data requirements associated with estimating loss in earnings by comparing the earnings of veterans before and after the onset of disability, it may be more feasible to estimate this by comparing the earnings of disabled veterans with those of a comparison group of nondisabled individuals. When using the difference between the earnings of the disabled and nondisabled to estimate the effect of a service-connected condition on earnings, the goal would be to use a nondisabled group that is similar in as many ways as possible to the disabled group. The more equivalent the two groups are, the more able we are to assume that the difference in earnings is the result of the condition and not some other factor. Veterans who are not on the disability rolls, therefore, would seem to be an appropriate comparison group. However, veterans not on the disability rolls may differ from disabled veterans in other characteristics that could explain earnings differences, including gender, age, and whether the veteran has been out of the workforce for reasons such as institutionalization. Some of these factors could be considered when selecting the final comparison group for the study or conducting the statistical analysis of the data (see next section). Controlling for Other Variables If the study design chosen compared the earnings of the disabled with That Affect Earnings those of the nondisabled, the simple difference between the two would not necessarily represent the effect of the condition on earnings. To isolate the condition’s effect on earnings, other variables that may differ between the disabled and nondisabled group and also influence earnings would have to be controlled for. The more variables influencing earnings that are Page 22 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 controlled for simultaneously, the more valid the estimates of the effect of service-connected conditions on earnings. Which variables to control for is another issue that the study’s methodology would need to address. Some of the characteristics of both disabled and nondisabled veterans that are believed to have an impact on earnings are age, education, gender, race, and region of residence. The number of variables controlled for could influence the cost and complexity of the study. Cross-tabulation and multiple regression are two statistical approaches that can be used to control for the differences in the characteristics of disabled and nondisabled veterans, other than disability status, that may account for the difference in earnings. Cross-tabulation would involve making comparisons of disabled with nondisabled veterans within potentially many different subgroups of the control variables (for example, age, gender, and education). Multiple regression allows the analyst to more efficiently analyze a larger number of variables simultaneously than does a series of cross-tabulations. Recent studies have used multiple regression to estimate the influence of different variables on wages and earnings. Data Sources Where and how to obtain data on earnings and the characteristics of veterans that may influence earnings is another decision to be made when developing an overall approach for this type of study. Existing administrative databases, such as Social Security Administration earnings records and Internal Revenue Service tax records, as well as data from national surveys, including the Survey of Income and Program Participation and the Current Population Survey conducted by the Bureau of the Census, contain information on earnings and, in some cases, other characteristics of the general population. These databases could be used in conjunction with information in VA administrative files to identify the effect service-connected conditions have on disabled veterans’ earnings. If data from these sources do not meet the requirements of this study or it is not feasible to use these sources, original data need to be collected. If this approach is necessary, sampling and data collection strategies for surveys of veterans on and off the disability rolls would need to be developed. Cost of Estimating Average As a result of their experience with similar studies, officials at the Bureau Impairment in Earning of the Census estimated that it would cost between $5 million and Capacity $10 million to conduct a study to determine the average impairment in Page 23 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 earning capacity resulting from all, or nearly all, the conditions in the schedule. The precise cost would depend on the study’s design and methodology. VA’s disability rating schedule has served as a basis for distributing Observations compensation among disabled veterans relative to their level of impairment in earning capacity since 1945. The schedule’s ratings do not, however, reflect the many changes that medical and socioeconomic conditions may have had on veterans’ earning capacity over the last 51 years. Thus, the ratings may not accurately reflect the levels of economic loss that veterans currently experience as a result of their disabilities. Estimates of disabled veterans’ average loss in earnings attributable to specific service-connected conditions could be (1) compared with the ratings for these conditions to determine whether the ratings correspond to economic loss and (2) used to adjust ratings that do not reasonably reflect this loss. There are pros and cons, however, to developing earnings-based disability ratings. It is uncertain what overall effect earnings-based ratings would have on total program outlays in the short term. Estimates of loss in earnings might show that ratings are appropriate and accurately represent the average loss in the earnings veterans experience. On the other hand, they might show that ratings assigned to some conditions are not appropriate and either overestimate or underestimate veterans’ average loss in earnings. Even if a significant number of ratings in the schedule are reduced on the basis of these estimates, it would not result in any short-term reduction in program outlays. Veterans on the rolls are protected by law from being adversely affected if the disability ratings assigned to their conditions are reduced. If estimates indicate that some ratings should be increased, the Secretary of VA has the discretion to increase these ratings for veterans on the rolls at that time. If the Secretary decides to do so, in the short term, total program outlays would increase. The long-term effect of an earnings-based schedule on total program outlays is also uncertain. Depending on (1) the number of ratings increased and reduced, (2) which rating levels change, (3) how much the levels change, and (4) the number of people that are affected by these changes over time, total program outlays might increase, decrease, or remain about the same over the long term. Page 24 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 It could cost between $5 million and $10 million to develop estimates of the average loss in earnings veterans experience as a result of specific service-connected conditions. The cost, however, represents a small fraction of the approximately $11.5 billion in disability compensation benefits paid to veterans in fiscal year 1995. In our opinion, there is a distinct benefit to be derived from developing these estimates and using them to adjust disability ratings in the schedule. We recognize the uncertainty surrounding the effect that basing ratings on loss in earnings might have on long-term program outlays. However, we believe this uncertainty does not outweigh the benefit of ensuring that disabled veterans receive appropriate and equitable compensation. In addition, the cost of developing these estimates is not substantial relative to the program benefits paid annually. VA’sdisability ratings do not reflect the effect economic, medical, and Matter for other changes since 1945 may have had on disabled veterans’ earning Congressional capacity. Therefore, the Congress may wish to consider directing VA to Consideration determine whether the ratings for conditions in the schedule correspond to veterans’ average loss in earnings due to these conditions and adjust disability ratings accordingly. In commenting on a draft of our report, VA said that the “schedule as it is Agency Comments currently structured represents a consensus among Congress, VA and the veteran community” and that the “ratings derived from the schedule generally represent the average loss in earning capacity among disabled veterans.” VA considers total disability to be “a purely medical determination,” and it contends that changing the basis for the ratings in the schedule would serve no useful purpose. In addition, VA believes that “economic factors converge with” disability ratings primarily when the Congress establishes the amount of compensation payable for each disability rating level, and the Congress may adjust these amounts whenever it determines they are not appropriate. VA also expressed concern that basing ratings in the schedule on average loss in earnings would (1) result in disparate awards based on such things as rank or education, (2) preclude the use of extra-schedular evaluations for exceptional disabilities, (3) not allow for meaningful input from VSOs, and (4) require annual revisions to the schedule to keep up with changing economic and vocational conditions. Page 25 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 Although the schedule may represent a consensus among the program’s key stakeholders, there is no assurance that this consensus produces ratings for conditions in the schedule that accurately represent the average impairment in earning capacity currently associated with these conditions. Furthermore, while total, or 100 percent, disability may be a reasonable reference point from which to establish ratings for partial disability, we do not agree with VA’s contention that disability is or should be solely a medical determination. Other programs define disability as loss in the ability to earn wages or work as a result of an impairment. An impairment is defined as a medical diagnosis of a specific abnormality, such as “paralysis of upper and lower limbs—one side.”13 Studies have shown that medical conditions are poor predictors of incapacity to work, that is, disability.14 We agree with VA that the Congress can adjust the rate—that is, the amount of compensation—it establishes for each rating level (10 through 100 percent) in the schedule when it believes that these benefit amounts are not appropriate. However, the primary responsibility to ensure that veterans are compensated commensurate with the average impairment in earning capacity they experience because of these conditions rests with the VA. This can be done by establishing ratings for conditions contained in the schedule that reflect veterans’ average economic losses attributable to these conditions. Basing ratings on estimates of the average earnings loss among veterans would not necessarily result in disparate treatment of veterans. Service-connected conditions that result in a high-percentage loss in earnings, on average, among veterans with these conditions would be assigned a rating higher than conditions that result in a low-percentage loss in earnings. As with the current schedule, veterans who have conditions that are assigned the same disability rating would receive the same basic monthly compensation regardless of such circumstances as their military rank or education. We believe disability ratings in the schedule should be based primarily but not solely on estimates of veterans’ average loss in earnings. Therefore, 13 World Health Organization, International Classification of Impairments, Disabilities, and Handicaps (Geneva: World Health Organization, 1980). 14 For example, see S.O. Okpaku and others, “Disability Determinations for Adults With Mental Disorders: Social Security Administration vs. Independent Judgments,” American Journal of Public Health, Vol. 84, No. 11 (Nov. 1994), pp. 1791-95, and H.P. Brehm and T.V. Rush, “Disability Analysis of Longitudinal Health Data: Policy Implications for Social Security Disability Insurance,” Journal of Aging Studies, Vol. 2, No. 4 (1988), pp. 379-99. Page 26 GAO/HEHS-97-9 VA’s Disability Rating Schedule B-274058 earnings-based ratings would not preclude extra-schedular evaluations. Nor would an earnings-based schedule prevent VA from obtaining and taking into account comments from VSOs and others when it revises the schedule just as it does today. Finally, the economists we consulted agreed that ratings based on earnings loss would need to be validated only once every 10 to 20 years to keep pace with changes in the economy and advances in medicine and technology that might influence the earning capacity of veterans with service-connected conditions. We have modified the report where appropriate in response to VA’s technical comments on the draft report. The complete text of VA’s comments appears in appendix IV. We are sending copies of this report to the Chairman and Ranking Minority Member of the Senate Committee on Veterans’ Affairs; the Ranking Minority Member, Subcommittee on Compensation, Pension, Insurance and Memorial Affairs, House Committee on Veterans’ Affairs; other appropriate congressional committees; the Secretary of Veterans Affairs; and other interested parties. We will also make copies available to others on request. If you have any questions about this report, please call Clarita Mrena, Assistant Director, at (202) 512-6812, or Shelia Drake, Evaluator-in-Charge, at (202) 512-7172. Other major contributors to this report are listed in appendix V. Sincerely yours, David P. Baine Director, Veterans’ Affairs and Military Health Care Issues Page 27 GAO/HEHS-97-9 VA’s Disability Rating Schedule Contents Letter 1 Appendix I 30 Design and Methodology for the Economic Validation of the Rating Schedule Appendix II 33 Examples of Changes Made to the Rating Schedule During the Current Update Appendix III 34 Results of VA’s Current Review and Update of the Disability Rating Schedule—Number and Types of Diagnoses Changed, by Type of Change Appendix IV 35 Comments From the Department of Veterans Affairs Page 28 GAO/HEHS-97-9 VA’s Disability Rating Schedule Contents Appendix V 38 GAO Contacts and Staff Acknowledgments Tables Table 1: Number of Veterans Receiving Disability Compensation 6 During FY 1995, by Degree of Disability Table 2: VA Disability Compensation Rates During FY 1995, by 8 Degree of Disability Table 3: Total Compensation Paid During FY 1995 to Disabled 9 Veterans, by Degree of Disability Table 4: Distribution of Veterans on the Rolls in FY 1995, by 13 Degree of Disability and Major Medical Category Table 5: Disability Ratings for Endometriosis 18 Table III.1: Number of Diagnoses Added to and Deleted From the 34 Schedule, by Body System Table III.2: Changes in Medical Criteria—Number of Diagnoses 34 Changed in Each Body System, by Type of Change Table III.3: Changes in Disability Ratings—Number of Diagnoses 34 Changed in Each Body System, by Type of Change Figure Figure 1: History of VA’s Schedule for Rating Disabilities 5 Abbreviations ADA Americans With Disabilities Act of 1990 ECVARS Economic Validation of the Rating Schedule VA Department of Veterans Affairs VSO veterans service organization Page 29 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix I Design and Methodology for the Economic Validation of the Rating Schedule The Economic Validation of the Rating Schedule (ECVARS) was designed to Study Objectives provide information that could be used to • estimate the average economic loss attributable to individual service-connected disabilities, • recognize trends toward increases or decreases in the rate of economic loss that can be expected with the passage of time and aging of the veteran population, • recognize and evaluate the basic differences between the disability evaluation policy of VA and that of other federal agencies for comparable disabilities, and • formulate proposals for the refinement of the schedule on the basis of these estimates and evaluations. To determine the average impairment in earning capacity resulting from Study Design specific service-connected conditions on the rating schedule, the ECVARS calculated the difference between the median earnings of veterans on the VA disability rolls, grouped by their disability’s diagnosis, and the median earnings of veterans not on the rolls. The earnings of nondisabled veterans were used to approximate what the earnings of disabled veterans would have been if they did not have their disability. To estimate the average loss in earnings experienced by disabled veterans Sample Design as a result of their specific service-connected condition, all disabled veterans on the disability rolls at that time were stratified into groups by the diagnosis assigned to their disability. While all disabled veterans in strata that contained 500 or fewer veterans were selected for this study, samples of disabled veterans were drawn from strata that contained more than 500. Sample sizes for each stratum ranged from about 200 to about 1,900 veterans. In total, 485,000 of the approximately 2 million veterans who were receiving disability compensation when this study was done were chosen to participate. Not included were female veterans on the disability rolls, veterans with multiple disabilities, and veterans whose VA disability compensation was based on the 1925 schedule. The ECVARS’ estimates of the median earnings of nondisabled veterans were based on the earnings of a sample of noninstitutionalized, nondisabled veterans selected from lists of individuals in the general Page 30 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix I Design and Methodology for the Economic Validation of the Rating Schedule population that the Bureau of the Census was using at that time to draw samples for its ongoing Current Population Survey. In total, approximately 14,000 nondisabled veterans were chosen for this survey. The ECVARS did not validate all diagnoses on the schedule, nor did it Study Scope validate each individually. Diagnoses that accounted for very small numbers of veterans on the VA disability rolls at that time were excluded from the study. Diagnoses with fewer than 200 veterans and similar symptoms were combined and validated as a single diagnosis. Diagnoses accounting for at least 200 veterans were validated individually unless they were what VA referred to as “adequately represented” by another diagnosis or group of diagnoses, in which case they were not validated. The ECVARS validated about 400 diagnosis strata, each containing at least one diagnosis from the schedule. The ECVARS used a mail survey to collect data on earnings from disabled Survey Methods and nondisabled veterans. The Bureau of the Census administered this survey for VA. Census mailed out a total of approximately 500,000 questionnaires in February 1968, which asked the veterans for data on earnings and other characteristics during the prior year. Census mailed out two additional follow-up questionnaires to nonrespondents and conducted telephone and face-to-face interviews to obtain data from those who did not respond to the mail questionnaire. Data collection was completed in the first quarter of fiscal year 1969. In addition to data on earnings, the ECVARS collected data on the age, Method for Estimating education, and geographic residence of veterans. The age variable was Loss in Earnings split into four categories—under age 30; ages 30 to 49; ages 50 to 64; and age 65 and over. Education was classified as less than a high school graduate, high school graduate, and 1 or more years above high school graduate. There were two categories for the regional variable—the South and all other geographical regions. When calculating the difference between the earnings of the disabled and nondisabled, each diagnosis stratum was paired with a unique “control” group that contained nondisabled veterans who were equivalent with respect to age, education, and region of residence to the disabled veterans in that diagnosis stratum. By controlling for the influence of these other Page 31 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix I Design and Methodology for the Economic Validation of the Rating Schedule variables, the study attempted to isolate the effect that the service-connected condition alone had on earnings. The ECVARS calculated a separate estimate of loss in earnings for each rating level associated with a specific diagnosis stratum. Study results were presented in terms of disabled veterans’ annual dollar loss in earnings, disabled veterans’ median percentage loss in earnings relative to the median earnings of nondisabled veterans, and disabled veterans’ median loss in earnings relative to the median earnings of production workers. Page 32 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix II Examples of Changes Made to the Rating Schedule During the Current Update Diagnostic code Old rating schedule Revised rating schedule Type of change Rationale 7501 Kidney, abscess of: rate Kidney, abscess of: rate Change in criteria New system of three for residuals as urinary tract infection general areas of dysfunction 7505 Kidney, tuberculosis of, Kidney, tuberculosis of: Change in wording Editorial changes only active or inactive: active - rate in accordance with 100; inactive - see 4.88b 4.88b or 4.89,a whichever and 4.89a is appropriate 7619 Ovaries, removal of both: Ovary, removal of: Change in convalescent To account for improved with complete extirpation for 3 months after period; change in surgical techniques, to and artificial menopause, removal - 100; thereafter, heading; and change in make this diagnostic for 6 months after complete removal of both evaluation criteria code explicitly excision - 100; thereafter, ovaries - 30; removal of applicable to the removal 30; removal of one with one with or without partial of one and two ovaries, or without partial removal removal of the other - 0 and to make removal of of the other - 10 (review for entitlement to one ovary special monthly noncompensable compensation under because it does not 3.350 of this chapter)a ordinarily impair earning capacity a Reference is to 38 C.F.R. parts 0-17 (1995). Source: VA, Rating Schedule Amendments Training Package, Vol. II (Washington, D.C.: VA, 1995). Page 33 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix III Results of VA’s Current Review and Update of the Disability Rating Schedule—Number and Types of Diagnoses Changed, by Type of Change Table III.1: Number of Diagnoses Added to and Deleted From the Body system Schedule, by Body System Oral/ Hemic/ Genitourinary dental Gynecological lymphatic All Diagnoses before review/update 31 14 17 15 77 Diagnoses eliminated 4 1 0 4 9 Diagnoses remaining 27 13 17 11 68 Diagnoses added 11 3 2 1 17 Diagnoses after review/update 38 16 19 12 85 Table III.2: Changes in Medical Criteria—Number of Diagnoses Changed in Each Body System, by Type of Change Body system Genitourinary Oral/dental Gynecological Hemic/lymphatic All Type of change in medical (out of 27 (out of 13 (out of 17 (out of 11 (out of 68 criteria diagnoses) diagnoses) diagnoses) diagnoses) diagnoses) Wording change 6 3 11 5 25 Criteria changed 17 0 10 7 34 Alternative criteria added 2 1 0 2 5 Reduction in minimum convalescence period before medical reevaluation 2 0 3 1 6 Increase in minimum convalescence period before medical reevaluation 0 0 0 0 0 Table III.3: Changes in Disability Ratings—Number of Diagnoses Changed in Each Body System, by Type of Change Body system Genitourinary Oral/dental Gynecological Hemic/ lymphatic All (out of 27 (out of 13 (out of 17 (out of 11 (out of 68 Type of change in rating diagnoses) diagnoses) diagnoses) diagnoses) diagnoses) Reduction in existing rating 1 0 1 1 3 Increase in existing rating 0 0 0 0 0 Addition of new evaluation levels or combination of evaluation levels 1 1 0 5 7 Elimination of minimum percentage evaluation 1 0 1 0 2 Page 34 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix IV Comments From the Department of Veterans Affairs Page 35 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix IV Comments From the Department of Veterans Affairs Page 36 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix IV Comments From the Department of Veterans Affairs Page 37 GAO/HEHS-97-9 VA’s Disability Rating Schedule Appendix V GAO Contacts and Staff Acknowledgments Clarita Mrena, Assistant Director, (202) 512-6812 GAO Contacts Shelia Drake, Evaluator-in-Charge, (202) 512-7172 The following individuals made important contributions to this report: Staff Connie D. Wilson, Senior Evaluator, collected a major portion of the Acknowledgments evidence presented; Timothy J. Carr, Senior Economist, reviewed the literature on the relationship between disability and earnings and provided advice on methodology; Steven Machlin, Statistician, provided guidance on research design and statistical methods; and Stefanie Weldon, Attorney, served as legal advisor. (105746) Page 38 GAO/HEHS-97-9 VA’s Disability Rating Schedule 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. 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VA Disability Compensation: Disability Ratings May Not Reflect Veterans' Economic Losses
Published by the Government Accountability Office on 1997-01-07.
Below is a raw (and likely hideous) rendition of the original report. (PDF)