Lump Sum Alternatives to Current Veterans’ Disability ...

CRM D0014443.A3/Final

November 2006

Lump Sum Alternatives to

Current Veterans¡¯ Disability

Compensation

Elizabeth Schaefer? Eric W. Christensen

4825 Mark Center Drive ? Alexandria, Virginia 22311-1850

Approved for distribution:

November 2006

Dr. Paul E. Speer

Director of Research

Institute of Public Research

This document was supported by Delivery Order Number 0087 under DON Contract Number N00014-05-D-0500

administered by Department of Navy. This document represents the best opinion of The CNA Corporation at the time of

issue. It does not necessarily represent the opinion of the Veterans¡¯ Disability Benefits Commission.

Approved for Public Release; Distribution Unlimited. Specific authority: N00014-05-D-0500.

Copyright ? 2006 The CNA Corporation

Contents

Executive summary.......................................................................................................... 1

Potential advantages and disadvantages.............................................................................. 2

Government programs with a lump sum............................................................................. 3

Elements in lump sum program design .............................................................................. 5

Changes in disability ratings ................................................................................................ 6

Savings in compensation payments ..................................................................................... 7

Administrative savings .......................................................................................................... 9

Estimating personal discount rates.................................................................................... 11

Discussion and conclusions................................................................................................ 12

Chapter 1. Introduction................................................................................................. 15

Chapter 2. Potential advantages and disadvantages........................................................ 17

Advantages for veterans...................................................................................................... 17

Advantages for VA .............................................................................................................. 18

Concerns about veterans¡¯ welfare...................................................................................... 19

Fairness in compensation ............................................................................................... 19

Deterioration in veterans¡¯ condition.............................................................................. 20

Use of the lump sum ....................................................................................................... 20

Chapter 3. Elements in lump sum program design ......................................................... 23

Individual disability or combined disability ...................................................................... 23

Eligibility ............................................................................................................................. 24

Limiting eligibility to newly compensable cases ............................................................ 24

Limiting eligibility by disability and rating .................................................................... 25

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Calculation and acceptance of lump sums........................................................................ 25

Present discounted value ................................................................................................ 25

Present discounted value with a personal discount rate ............................................... 26

Comparison of PDVs for VA and for veterans ............................................................... 27

Decisions to accept lump sum offers.............................................................................. 29

Treatment of cases where condition deteriorates ............................................................ 31

Financial education and counseling.................................................................................. 32

Chapter 4. Government programs with a lump sum........................................................33

U.S. federal lump sum programs....................................................................................... 33

Disability/injury programs.............................................................................................. 33

Separation/retirement programs................................................................................... 37

Other countries¡¯ programs for disabled veterans ............................................................. 38

Canada ............................................................................................................................. 39

The United Kingdom...................................................................................................... 40

Australia ........................................................................................................................... 40

Comparison of programs ................................................................................................ 41

Implications for a VA lump sum program ..................................................................... 42

Financial advice regarding lump sums........................................................................... 43

Summary ............................................................................................................................. 44

Chapter 5. Changes in disability ratings ..........................................................................47

Data description.................................................................................................................. 47

Overall re-rating results ...................................................................................................... 49

Re-rating results by body system ........................................................................................ 49

Re-rating results within a body system ............................................................................... 54

Re-rating results for specific diagnoses.............................................................................. 55

Estimates of re-rating probabilities over long time periods ............................................. 59

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Summary ............................................................................................................................. 61

Chapter 6. Savings in compensation payments ............................................................... 63

Prior estimates of compensation savings........................................................................... 63

Savings in compensation payments for specific diagnoses............................................... 64

Data and methods ........................................................................................................... 64

Sample diagnoses ............................................................................................................ 65

Estimates of savings in compensation payments ........................................................... 67

Total savings in compensation payments .......................................................................... 72

Data and methods ........................................................................................................... 72

Estimates of savings in compensation payments ........................................................... 73

Summary ............................................................................................................................. 78

Chapter 7. Administrative savings .................................................................................. 79

Prior estimates of administrative savings........................................................................... 79

Components of administrative costs affected by a lump sum .......................................... 80

Estimates of administrative savings.................................................................................... 80

Savings and costs per lump sum recipient ..................................................................... 81

Aggregate savings and costs ............................................................................................ 84

Summary ............................................................................................................................. 85

Chapter 8. Estimating personal discount rates ............................................................... 87

Methods for ascertaining personal discount rates............................................................ 87

Technical issues in designing a survey or pilot study ....................................................... 88

Lump sums and annuities offered.................................................................................. 88

Sampling strategy ............................................................................................................ 91

Demographic information.............................................................................................. 92

Survey questions on lump sum offer .............................................................................. 92

Comparison between a survey and a pilot study ............................................................... 93

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