Lump sum: buy-out or sell-out?

Replacing monthly disability compensation payments with a one-time, lump sum payout, as some have suggested, might save the Department of Veterans Affairs money and reduce the claims backlog, but would it be good for veterans?

That is the fundamental question the Veterans' Disability Benefits Commission must keep in mind as it weighs various options for reforming veterans benefits. "That really is the bottom line, whether those reforms will actually benefit veterans," said National Adjutant Arthur H. Wilson. "We've seen in the past that proposals for overhauling veterans benefits have focused on cutting costs and easing the VA's workload with little regard for the potential adverse impact on disabled veterans. And because of those concerns, the DAV has consistently opposed lump sum payments for nearly a decade."

Adjutant Wilson also noted that a long-standing resolution opposing lump sum payments for service-connected disability compensation was again adopted by the delegates to the DAV's 2006 National Convention in Chicago.

The issue is again being debated as the Veterans' Disability Benefits Commission has asked its contractor, the CNA Corporation, to study the issues involved in offering a one-time lump sum payment instead of the current lifetime monthly compensation payments. A draft report presented to the commission at its Sept. 13-15 meeting in Washington, D.C., noted that despite the potential advantages of a lump sum program, there are some possible negative effects on veterans' financial welfare.

The CNA report said the VA's costs associated with monthly payments would be reduced simply from having fewer veterans in the system. In addition, the costs of processing those applications would be eliminated or reduced if lump sum recipients were not allowed to re-open claims when their service-connected disability worsens, or if the circumstances for re-opening claims were restricted.

One concern CNA found is that the lump sum should be "fair" in comparison with lifetime monthly compensation payments.

"The fairness issue is very troubling," said National Adjutant Wilson. "In order for the VA to save money, the lump sum buyout would have to be less than the total of a veteran's lifetime monthly compensation

payments. What the commission is being asked to consider is a one-time payment that could be about half of what the veteran would receive in a lifetime under the current compensation system."

The CNA report looked at potential savings from lump sum payments to certain veterans with 10 percent or 20 percent disability ratings. One-time payments would be based on the veteran's life expectancy and would be a fraction of the current value of lifetime monthly payments.

For example, a 25-year-old veteran rated 20 percent disabled who now gets $218 a month in compensation would receive $65,127 over his lifetime. By offering that veteran a one-time payment of $21,329 to $32,691, the VA could save between 44 percent and 67 percent of its compensation costs.

"Related to the fairness issue, are questions of how veterans who receive one-time payments would be treated if their disability gets worse, and whether they would still be able to get VA health care for their service-connected disability," said Wilson. "The current benefits program allows a veteran to apply for an increased rating when a service-connected condition deteriorates. So any change that does not allow lump sum recipients to re-open their claims certainly is not in the best interests of veterans."

"Another concern is that some veterans' might not use their lump sums wisely, which could jeopardize their basic financial welfare," said Wilson. "Some veterans, especially those who already are in financial need or who lack adequate money management skills, might spend the money rather than invest it."

"From a veterans advocacy standpoint, there are just too many potential drawbacks to lump sum payments," Wilson said. "The DAV strongly opposes the government's using lump sum settlements to entice veterans to give up their future compensation entitlement. In the final analysis, a lump sum program would be a reduction in veterans' benefits to save the government money. And that would be a bad bargain for disabled veterans."