Order Code RS21327
Updated November 15,2002
CRS Report for Congress
Received through the CRS Web
Concurrent Receipt of Military Retirement and
VA Disability Benefits: Budgetary Issues
Amy Belasco
Foreign Affairs, Defense and Trade Division
Summary
Instead of including the House or Senate version of concurrent receipt
(simultaneous payment) of military retirement and Department of Veterans Affairs (VA)
disability benefits in the conference version of the FY2003 National Defense
Authorization Act (H.R. 4546), Congress provided new benefits for military retirees
whose disabilities stem from combat or combat-related activities. Those eligible would
receive these new benefit payments, which match VA disability payments, in addition
to retired pay. To qualify, retirees would have to demonstrate either that their disability
was caused by an injury for which they received a Purple Heart or that their disability
was rated at 60% or higher and resulted from armed conflict, hazardous service, training
activities that simulate war, or an “instrumentality of war” (war-related circumstances).
Within 180 days, the Department of Defense (DOD) must prescribe criteria and
procedures for determining eligibility for these new benefits. DOD must also fund the
new benefits, estimated to cost between $200 million and $800 million annually, and
about $10 billion over 10 years. Disability ratings would continue to be made by DOD
for military personnel who retiree on disability and by the VA for retirees who apply for
disability benefits after leaving the military. Although it is difficult to predict the
number who would be eligible, some have estimated that about 33,000 retirees could
qualify.
Unlike the House or Senate versions of concurrent receipt that the Administration
threatened to veto, these new provisions were acceptable to the White House. With
hearings by the Senate Armed Services Committee on concurrent receipt promised for
next year, this issue is likely to resurface. This report was prepared under the supervision
of Gary Pagliano, Specialist in National Defense. It will be updated as warranted.
Eligibility and Cost of New Benefits Enacted
The conference version of the FY2003 DOD Authorization Act (H.R. 4546) that was
adopted by voice vote on November 12 in the House and on November 13 in the Senate
includes new benefits for military retirees with 20 or more years of service whose
disabilities stem from combat or combat-related activities. Until the Defense Department
Congressional Research Service ˜
The Library of Congress
CRS-2
develops the procedures and criteria for determining eligibility in six months, it will be
difficult to know who will qualify or what the annual cost will be. Although no funding
was included for these new payments in the FY2003 DOD Appropriations Act (P.L. 107-
248), DOD will have to reprogram or transfer funds from other programs or request a
supplemental appropriation to cover the annual cost.1 Since these new provisions establish
a new entitlement, DOD will have to continue to fund the cost of the benefit every year.2
The new provisions were hammered out by senior members of the House and Senate
Armed Services Committees, Senator Warner and Congressman Hunter, the Office of
Management and Budget, and the White House and are designed to compensate those
whose disabilities stem from their service in combat or combat-related circumstances.3
This year’s compromise of “Purple Hearts plus Others” is unlikely to end the
controversy about concurrent receipt. Characterized by Senators Warner and Levin as “a
beachhead,” and by Congressman Hunter as a compromise that gives priority to those who
“put their lives on the line,” the concurrent receipt issue is likely to be revisited next year.4
Although there is much support in Congress to expand benefits, concerns raised by the
Administration about the effect on the deficit and the precedent for other federal benefit
programs are also not likely to go away.5
Determining Eligibility. Under the new provisions, DOD is responsible for
determining whether retirees are deemed to have a disability that stems from a combat or
combat-related injury or medical condition. To be eligible, retirees will have to show that
the disability resulted from:
! an injury for which they received a Purple Heart; or
! a service-connected disability of more than 60% that “was incurred
! as a direct result of combat;
! while engaged in hazardous service;
! in the performance of duty under conditions simulating war; or
! through an instrumentality of war.”6
Retirees will receive compensation for any level of disability that stems from an
injury related to a Purple Heart. To determine eligibility, DOD will establish procedures
to determine whether particular disability ratings reflect Purple Heart injuries, and retirees
can then apply to see if they qualify.
1 The bill requires the DOD cover the cost. CBO has not yet issued its cost estimate. Senator
Warner estimated that about 33,000 would be eligible, see
Congressional Record, p. S. 10860.
2 See provisions in Section 636 of H.R. 4546, FY2003 DOD Authorization; see pp. H8128-
H8129, and p. H8460 in the
Congressional Record, November 12, 2002 or H.Rept. 107-772.
3 See Congressman Hunter’s remarks in
Congressional Record, November 12, 2002, p. H8535.
4 See
Congressional Record, November 13, 2002, p. S10859 and S10864, and
Congressional
Record, November 12, 2002, p. H8535.
5 Statement of Administration Policy on FY2003 DOD Authorization bills, S. 2514, the Senate-
reported bill; see [http://www.whitehouse.gov/omb/legislative/].
6 Title X, Chapter 71, (e)(2)(A) in Section 636 of H.R. 4546, FY2003 DOD Authorization Act;
see
Congressional Record, November 12, 2002, p. H8128.
CRS-3
To determine whether service-connected disabilities of 60% or more are related to
combat, DOD can build on current statutes and regulations because military personnel
who retire on disability do not need to pay income taxes on their retired pay if their
disabilities fall into one of the four categories above of combat-related disabilities.7
According to those regulations, “armed conflict” includes wars, guerilla actions or
other hostile actions as well as prisoner of war experiences, and “hazardous duty”
includes activities like flight, diving, or parachute duty. Disabilities due to “conditions
simulating war” could be incurred in activities like war games, practice alerts, or
exercises. Disabilities due to an “instrumentality of war” would be injuries or medical
conditions caused by circumstances peculiar to war such as being exposed to gases or
injured by explosions, or caused by being on military equipment or platforms, such as a
falling on the deck because of the pitching of a ship.8
For those military personnel who collect regular retirement, DOD will need to
establish criteria and procedures to determine whether disabilities developed after they
leave the military service stem from combat or combat-related categories. VA will
continue to determine disability ratings after military personnel retire. VA medical
records may include documentation that DOD may use to determine if disabilities are due
to combat or combat-related activities.
Funding the New Benefit. According to the new provisions, DOD is
responsible for covering the cost for current beneficiaries. This practice follows the
precedent set in the special compensation benefit enacted in FY2000 that provides
additional payments to those retirees who are determined to have disabilities greater than
60% within 4 years of leaving the military. These payments, however, are only about one-
tenth as large as the VA disability amounts. If those receiving special compensation
qualify for these new combat-related benefits, they can opt for those payments instead.
Uncertainties about Eligibility and Cost. Until DOD develops the regulations
to determine eligibility, it will not be clear who will qualify; nor will the cost be known.
For example, during floor debate, Congressman Hunter suggested that disabilities due to
Agent Orange or Gulf War syndrome would be considered to be caused by
“instrumentalities of war.” Ultimately DOD’s regulations will set out the types of
circumstances that are covered and the documentation required to demonstrate eligibility.
Budget Issues Posed by Concurrent Receipt
Resolving the issue of concurrent receipt proved to be one of the most difficult issues
in the FY2003 National Defense Authorization Act. The President threatened to veto the
entire bill if either version of concurrent receipts was included because of concerns about
7 See 26 USC, Section 104 and DOD Instruction 1332.38, p. 42-45. Disability retirees who are
eligible for this new benefit would only be eligible for retirement based on longevity.
8 See
DOD Instruction 1332.38, November 14, 1996, pp. 43-45; available on the DOD web site
at [http://www.dtic.mil/whs/directives/corres/pdf/i133238_111496/i133238p.pdf].
CRS-4
cost and creating a precedent that could lead to costly increases in other federal benefit
programs.9
Under current law, military retired pay is reduced or offset dollar-for-dollar for any
VA disability benefits a retiree receives.10 Proponents of concurrent receipt believe that
“retirees are entitled to receive both retired pay for which they contributed years of
faithful service and the VA compensation for a service-connected disability intended to
recognize a lifelong limitation on earning potential.”11 Opponents of concurrent receipt,
popularly referred to as “double-dipping,” describe concurrent receipt as “two pays for the
same event,” and argue that VA benefits are intended to compensate disabled veterans
who had to leave the military, and whose later earnings were affected.12
Coverage and Cost of Previous Versions Considered This Year. As
reported, the House version of concurrent receipt in H.R. 4546 was more restrictive and
less costly than that of the Senate.
Comparison of Eligibility. On an annual basis, the House version would have
covered about 110,000 retirees with disability ratings of 60% or higher and cost about
$2.7 billion while the Senate version would have covered about 710,000 retirees with
disability ratings of 10% or above and cost about $6.0 billion (see
Tables 1 and 2).13
Average Benefit Level. Because the House bill targeted those with ratings of
60% or above, the average payment was higher (see
Table 1). The broad coverage in the
Senate bill reduced average benefit payments because benefits are lower for those with
lesser disabilities.14 About 75% of military retirees have disability ratings below 60%.
9 See “Hill, White House Still Fighting over Retirement Pay,”
Army Times, Sept. 30, 2002. See
also CRS Issue Brief IB85159,
Military Retirement: Major Legislative Issues, by Robert L.
Goldich, August 29, 2002; CRS Report 95-469,
Military Retirement and Veterans’
Compensation: Concurrent Receipt Issues, by Robert Goldich, April 7, 1995, and
Concurrent
Receipt of Military Retired Pay and Veterans’ Compensation: Analogies and Issues, by Carolyn
L. Merck and Robert L. Goldich, May 5, 1993 (available through the CRS authors).
10 Military retirees typically accept the offset because VA benefits are tax-exempt and military
retirement is not. For example, if a retiree is eligible for $100 in retired pay and $20 in VA
disability benefits and wants to collect both benefits, he would receive a total of $100 including
$80 in taxable retired pay ($100 - $20 offset) plus $20 in untaxed VA benefits. See Title 38,
U.S. Code, Sections 5404 and 5405 for the relevant provisions.
11 H.Rept. 107-436, (May 3, 2002) p. 320.
12 Armed Forces Press Service, “Double-Dip Retirement Measure May Become a Law,”
American Forces Information Service, September 25, 2002.
13 CRS selected FY2007 to reflect full implementation of the House bill’s provisions. Both bills
cover only retirees who leave after twenty years of service. See Section 641 (Title X, Section
1414 (b) (2) in H.R. 4546 as passed by the House on May 9, 2002 and as Section 641 (Title X,
Section 1414 (c) as passed by the Senate on June 27, 2002.
14 To be conservative, CRS calculated annual rates from VA Compensation Rate Table for
“veteran alone;” retirees with spouse and dependents collect more. Ratings reflect conditions
ranging from large hemorrhoids to heart disease. See VA Compensation Rate Table on
[http://www.vba.va.gov/bln/21/Rates/comp01.htm] and DOD, “Schedule for Veterans Affairs
System for Rating Disabilities (VASR-D).”
CRS-5
Table 1. Number Eligible and Average Payments under House and
Senate Versions of Concurrent Receipt in FY2007
Number Eligible and
Current Payments
House: Partial
Senate: Full
Average Annual Benefit
to Severely Disabled
Concurrent Receipt
Concurrent Receipt
Number eligible
40,300
111,000
712,000
Non-disabled retirees
Not applicable
87,000
679,000
Disabled retirees
Not applicable
24,000
33,000
Average new benefit
$1,700
$18,000
$6,400
Non-disabled retirees
Not applicable
$20,000
$5,700
Disabled retirees
Not applicable
$13,500
$8,900
Sources: CBO,
Updated cost estimate for Senate-passed FY 2003 DOD Authorization bill; CBO,
Cost Estimate for
H.R. 4546, May 3, 2002 , CBO, Cost Estimate for S.170, Retired Pay Restoration Act of 2001, May 22, 2001; see cost
estimates under [http://www.cbo.gov].
Notes: CRS selected FY2007 when both the House and Senate versions of concurrent receipt would be fully
implemented. Special compensation provisions would be eliminated in both bills; current levels are shown for
comparative purposes.
Income Levels of Those Eligible for Concurrent Receipt. Permitting
concurrent receipt would substantially increase the income of military retirees. As
illustrative examples,
Table 2 below shows the effect on retired pay of concurrent receipt
for an O-5 and an E-7, the most common rank of those who retire with 20 or more years
of service.15
Table 2. Change in Annual Benefits with Concurrent Receipt for an
O-5 and E-7 By Disability Level
Disability
Conc. Rect.
Retired Pay
Percent Inc.
Retired Pay
Percent Inc
Level
Benefit a
for O-5
for O-5
for E-7
for E-7
20%
$2,400
$35,600
7%
$14,900
16%
40%
$5,300
$35,600
15%
$14,900
35%
60%
$9,500
$35,600
27%
$14,900
64%
80%
$13,900
$35,600
39%
$14,900
93%
100%
$26,000
$35,600
73%
$14,900
174%
Sources: CRS calculations of annual rate from VA Compensation Rate Table; see
[http://www.vba.va.gov/bln/21/Rates/comp01.htm].
Note: a Benefit levels for a veteran alone with no dependents.
Because most military personnel retire in their early to mid-forties after 20 years of
service and work after retirement, most have income in addition to their retired pay.16 For
example, the average family income of those with disability levels of 60% or less is about
$63,000, including about $33,000 in retiree earnings. That income level is about $1,000
below the income level of those retirees with no disability rating. With family income of
15 About one-third of all officers retire as O-5s (lieutenant colonel or Navy commander) and about
40% of enlisted personnel retire as E-7s (sergeants, chief petty officers); see DOD, Office of the
Actuary, “Number of Military Retirees Receiving and Not Receiving Retired pay from DOD as
of Sept. 30, 2000.”
16 A 1996 survey showed that over 75% of retirees under the age of 65 with disability ratings
below 70% work, and about half of those with higher disability levels work.
CRS-6
about $59,000, those with disability ratings of 70% or higher are likely to have family
incomes and earnings that are lower than retirees without disability ratings.17
Comparison of Costs. The House version of concurrent receipt was less costly
than the Senate version because fewer retirees would be eligible and benefits would phase
in over 5 years rather than being available immediately as in the Senate version (see
Table 3 below).18 Over 10 years, CBO estimated the cost of the House bill at $24.5 billion
compared to $61 billion for the Senate bill. The Administration’s estimates of 10-year
costs are higher than CBO estimates: $29 billion for the House bill and $74 billion for
the Senate bill.19 If more military retirees applied for benefits or disability levels grow,
then costs would be higher.20
Table 3. Estimates of First, Five, and Ten-Year Costs of House and
Senate Versions of Concurrent Receipt in H.R. 4546
(Dollars in billions)
Payments to
House: Partial
Senate: Full
Severely
Fiscal Years and Type of Spending
Concurrent
Concurrent
Disabled
Receipt
Receipt
Retirees
TOTAL COST, FY2003 including:
0.1
1.1
4.3
Direct spending for current retirees
0.1
0.5
3.2
Accrual payments for workforce
NA
0.6
1.1
Total Cost, FY2007 including:
0.1
2.7
6.0
Direct spending for current retirees
0.1
2.0
4.5
Accrual payments for workforce
NA
0.7
1.5
FY2003-FY2007 including:
0.3
8.8
26.0
Direct spending for current retirees
0.3
5.8
19.5
Accrual payments for workforce
NA
3.0
6.5
FY2003-FY2012 including:
0.7
24.8
61.2
Direct spending for current retirees
0.7
17.8
45.8
Accrual payments for workforce
NA
7.0
15.4
Sources: CBO, Cost estimate, H.R. 4546, Bob Stump National Defense Authorization Act for FY2003,
May 3, 2002; reported version is the same as House-passed; CBO, updated estimate for Senate-passed bill.
Note: Includes beneficiaries from DOD, Coast Guard, Public Health Service and NOAA.
17 DOD,” Tables 2B, 4B, and 5B, “Earnings of Disabled Veterans,”
1996 Survey of Disabled
Military Retirees, 2002.
18 The House version of H.R. 4546 provides that VA benefits increase each year until by FY2007,
retirees receive the full amount of both benefits. For example, the annual VA benefit for a retiree
with 60% disability would rise from $1,500 in FY 2003 to $10,200 in FY 2007.
19 For example, a severely disabled retiree with a 60% disability today receives $600 a year but
would receive $9,480 under the House or Senate bills. See OMB,
Statement of Administration
Policy for S. 2514 for Administration’s estimates of costs.
20
Ibid; see Mark Dye and Patrick Mackin, SAG Corporation,
Prohibition on Concurrent Receipt
of Military Retired Pay and Veterans Disability Compensation, A Review, March 25, 2002, p.
23ff. Although DOD evaluates military retirees only once for disabilities when they leave
military service, retirees can be evaluated and re-evaluated by VA anytime during their lifetime.