1). Disability Ratings May Not Reflect Economic Loss

Disability ratings in the current schedule may not reflect the actual economic loss that disabled veterans, on average, now experience. While the law contains no definition of “impairments in earning capacity,” ratings 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. It set disability ratings on this basis. Changes in the Economy and Society Since 1945 Indicate That Ratings May Need Updating

Even if functional capacity accurately approximated disabled veterans’ reduction in earning capacity in 1945, changes have occurred since then that have implications for how accurately those ratings reflect disabled veterans’ reduction in earning capacity today. There have also been changes in the labor market and social attitudes toward the disabled that may affect disabled veterans’ ability to work. As part of this study, the Commission examined VA’s Schedule for Rating Disabilities. The ECVARS is the most comprehensive assessment of the validity of the ratings ever done. Although the ECVARS found that many of the ratings in the schedule did not correspond to the actual earnings loss experienced by veterans, no changes were made to the schedule on the basis of these findings. Using Data on Earnings Has Advantages in Determining Impairment in Earning Capacity

Although VA has chosen not to do so, using an estimate of actual loss in earnings to approximate loss in earning capacity would help VA make certain that veterans are compensated to an extent commensurate with the economic losses attributable to service-connected conditions. This would also help to ensure that disability compensation funds are equitably distributed among disabled veterans given today’s work environment. Cost of Estimating Average Impairment in Earning Capacity

As a result of their experience with similar studies, officials at the Bureau of the Census estimated that it would cost between $5 million and $10 million to conduct a study to determine the average impairment in earning capacity resulting from all, or nearly all, the conditions in the schedule. 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. The cost, however, represents a small fraction of the approximately $11.5 billion in disability compensation benefits paid to veterans in fiscal year 1995. Matter for Congressional Consideration

VA’s disability ratings do not reflect the effect economic, medical, and other changes since 1945 may have had on disabled veterans’ earning capacity. We believe disability ratings in the schedule should be based primarily but not solely on estimates of veterans’ average loss in earnings. Other major contributors to this report are listed in appendix V.

Design and Methodology for the Economic Validation of the Rating Schedule

	Study Objectives

The Economic Validation of the Rating Schedule (ECVARS) was designed to provide information that could be used to estimate the average economic loss attributable to individual 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.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information that would enable the subcommittee to assess the need for a comprehensive study of the economic validity of the Department of Veterans Affairs' (VA) disability rating schedule, focusing on: (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 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.

What GAO Found

GAO found that: (1) the disability ratings in VA's current schedule are still primarily based on 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; (2) 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; (3) the results of an economic validation of the schedule conducted in the late 1960s indicated that ratings for many conditions did not reflect the actual average loss in earnings associated with them; (4) it is likely that some of the ratings in the schedule do not reflect the economic loss experienced by veterans today; (5) the schedule may not equitably distribute compensation funds among disabled veterans; (6) VA has done little since 1945 to help ensure that disability ratings correspond to disabled veterans' average loss in earning capacity; (7) 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; (8) 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; (9) GAO's 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; (10) these estimates could be used to set disability ratings in the schedule that are appropriate in today's socioeconomic environment; and (11) 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.