Disability compensation for veterans severely wounded in Iraq and Afghanistan, particularly the youngest, is set too low, creating a lifetime earnings gap with nondisabled peers, according to a draft study on disabled veterans’ incomes prepared for the Veterans Disability Benefits Commission.

The same study found that disability compensation probably is set too high for veterans who first begin drawing the disability payments at age 65 or older, having already retired from postservice careers.

This imbalance in disability compensation paid by the Department of Veterans Affairs (VA) was a point of contention at a June 8 commission hearing. The data help to explain why younger disabled veterans, facing a lifetime of income challenges, are more dissatisfied with disability pay. But commissioners sounded divided on how to address the imbalance in earning capacity if part of the perceived solution is to dampen future payments to elderly veterans who are awarded VA compensation late in life.

Congress created the commission to examine the appropriateness of benefits being paid to veterans and their survivors. The commission hired the think tank CNA to survey more than 20,000 veterans to determine the effectiveness of VA disability payments in replacing earnings capacity lost to service-connected disabilities when compared to nondisabled peers. The law states restoration of veterans’ average earnings capacity as the primary purpose for VA disability payments.

CNA also examined how well disability compensation meets the “implied intention” of Congress that disability payments also compensate veterans in some way the decline in quality of life from their disabilities.

CNA officials reported this latest commission meeting that they found no evidence basic VA disability payments are set so as to recognize and compensate veterans’ for diminished quality of life as well as earnings loss. The exception is special monthly compensation (SMC) paid to the most severely injured veterans who have lost organs or major bodily functions.

Briefing commissioners on their findings were CNA analysts Joyce McMahon and Eric Christensen. They said current payment levels are “about right” if the goal literally is to compensate an entire population of disabled veterans for lost earnings capacity compared to nondisabled vets.

The typical veteran is awarded disability pay around age 55. The prevent value of their diminished lifetime earnings is about $150,000 and over their remaining years they will draw about $145,000 in VA disability compensation, nearly matching average earning loss.

But the fairness of disability payments unravels when actual earning losses are broken out by the veteran’s age when payments start, the severity of disability and whether conditions are physical or mental. Earnings capacity is impacted far more dramatically by mental disorders, CNA found.

Other veterans being undercompensated, and by a “substantial margin,” said Christensen, are those left 100 percent disabled or unemployable at 45 or younger. McMahon advised commissioners that they might want to consider adjustments to compensation levels, particularly for these younger veterans, given the rising population of wounded returning home from wars in Iraq and Afghanistan.

The analysts noted that when VA compensation fails to keep pace with lost earnings, declines in qualify of life deepen for veterans and their families.

CNA noted that a 25-year-old veteran who returned from war 100 percent disabled from physical wounds and was rated as unemployable by the VA began receiving $28,352 a year in disability compensation using 2005 rates. That amount was more than $11,000 short of the $39,447 needed annually to stay even with nondisabled peers, the study found.

VA paid the same $28,352 to a 65-year-old veteran rated as “IU” or individual unemployable. But if that older veteran became disabled for the first time at 65 based on latent service-connected conditions, after working a full career, VA actually is overcompensating him, the study found. That’s because that older veteran, with his working life behind him, would need only $10,223 to close an earnings gap with peers who were nondisabled veterans.

“So, while on average [VA compensation is] about right, there are age groups for which it over- or under-compensates,” said CNA analyst Eric Christensen.

The imbalance occurs in part because the disability compensation system takes no notice of age or work experience when payments begin.

The earnings gap is more pronounced for veterans who suffer mental disorders such as posttraumatic stress, CNA reports. A 25-year-old veteran rated 20 percent to 40 percent disabled from PTSD received on average VA disability compensation $4,629 in 2005. Yet to match the earnings of nondisabled veterans of the same age, that PTSD veteran would need almost $11,500 a year in VA compensation for the rest of his or her life, the study found.

By contrast, the 65-year-old veteran newly diagnosed with PTSD, also rated 20 percent to 40 percent disabling, faces a smaller earnings gap with peers — only $4,070. It’s a gap fully closed by that VA compensation of $4,629.

While some commissioners expressed satisfaction that “average” VA compensation was adequate, and others challenged the notion of elderly veterans being overcompensated, Commissioner Dennis V. McGinn, a retired Navy vice admiral, said something must be done to raise compensation of younger veterans. Commissioner John Holland Grady, an economist, agreed.

“I think we should be zealous in trying to fix that,” Grady said. “I mean the average is interesting, but so what?”

CNA analyst McMahon noted helpfully that “whether you are happy with an average depends on which end of the distribution you are on.”

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