Veterans’ Disability Compensation: Growth and Policy

Congress is currently considering a significant expansion of veterans’ disability compensation in HR 2102, the Major Richard Star Act . It would allow approximately 400,000 military retirees to receive the full amount of both their military retired pay and their disability compensation, with no offsets, at a cost to the federal government of roughly $78 billion over 10 years, according to the Congressional Budget Office (CBO). The Veterans Administration (VA) disability program offers a monthly tax-free lifetime payment without means testing and with no reduction at retirement age to veterans who became sick or injured while serving, or whose service worsened a pre-existing condition.  It covers physical conditions (like chronic illness or injury) and mental health conditions (like PTSD) that developed before, during, or after service, even if the disability is partial. In 2024, there were nearly six million disabled recipients (out of about 18 million veterans, or 33 percent, not counting survivors and dependents) receiving on average about $25,500 a year, for a total cost to the federal government of $153 billion annually. The comparable figures in 2020 were five million recipients (out of 21.7 million veterans, or 23 percent), averaging $18,000 a year, for a total of $91 billion. This rapid increase over a short period, with spending growing 19 percent in 2023 alone, stems from the encouragement of claims by the Biden Administration and the passage of the PACT Act of 2021. That legislation expanded eligibility for compensation and health care benefits to veterans from Vietnam and subsequent conflict eras with 23 presumptive conditions, such as cancer, thought to be related to toxic exposures, removing the requirement to prove medical causality.     By contrast, Social Security Disability Insurance (SSDI) is taxable, means tested for earnings, and requires full disability. Covering nearly the entire workforce, it had 7.2 million disabled worker beneficiaries in 2024 out of 184 million workers (3.9 percent), down from nine million out of 169 million (5.4 percent) in 2015. Over that period, total benefits (including for dependents) rose modestly from $133 billion to $147 billion, and the average annual benefit rose from $13,000 to $18,000. Veterans can receive both SSDI and veterans’ disability compensation simultaneously.  CBO has scored several policy options related to veterans’ disability compensation. Currently, these payments are intended to compensate for average expected earnings losses given the severity of a service-connected condition, regardless of whether the condition actually reduced their earnings. Under one option, full compensation would be restricted to households with incomes below $135,000, phasing out above that level at a rate of $1 for every $2 of additional income. This change would affect roughly 30 percent of recipients and save about $400 billion over 10 years. As noted above, veterans’ disability payments are excluded from taxable income. CBO estimates that making them taxable would increase federal revenues by $235 billion over 10 years. Also noted above, veterans’ disability payments do not require full disability. Imposing a minimum disability rating of 30 percent would reduce federal outlays by roughly $60 billion over 10 years if applied to all veterans. The VA may increase compensation to the 100 percent severity level for veterans rated at least 60 percent who are determined unable to maintain substantial gainful employment, regardless of age, retirement status, or other factors. Under one option scored by CBO , this individual unemployability supplement would end at the full Social Security retirement age, with payments reverting to the rated disability level thereafter. This policy would reduce federal outlays by $61 billion over 10 years if applied to all veterans above 67. As mentioned above, veterans’ disability compensation is not reduced at any retirement age. Under a separate CBO option, veterans who begin receiving disability payments in 2026 or later would see those payments reduced by 30 percent at age 67, reducing federal outlays by $34 billion over 10 years.     Defense Secretary Hegseth has expressed support for HR 2102. The Trump Administration recently backed away from a regulatory proposal that would have allowed disability evaluators to consider how well a veteran’s condition is controlled by medication when assigning disability ratings, as is generally done in SSDI. This rule would have affected about 93,000 veterans and saved roughly $23 billion over 10 years. Recent media investigations have uncovered evidence of exaggerated claims and minor disabilities being used to obtain benefits. Nonetheless, the Trump Administration and Congress do not appear as concerned with waste and fraud in this area, in contrast to their scrutiny, indeed legitimate, of welfare programs like Medicaid. 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