DOD Disability: Overview of Compensation Program for Service	 
Members Unfit for Duty (27-APR-01, GAO-01-622). 		 
								 
This report provides information about the Deparment of Defense's
(DOD) disability severance program that provides a lump-sum	 
payment for certain service members with a disability. GAO found 
that the administration of disability severance, like medical	 
retirement pay, follows service-specific procedures using DOD	 
guidance. The services assess members' fitness for duty along a  
scale ranging from 0 to 100 percent in gradations of 10. Members 
unfit for duty who have 20 or more years of military service with
any disability rating or who are assigned a disability rating of 
30 percent or higher receive medical retirement payment. In	 
contrast, the lump-sum disability severance payment is made to	 
members unfit for duty who have less than 20 years of military	 
service and who are assigned a disability rating less than 30	 
percent. In fiscal year 2000, the number of assessments resulting
in disability severance payment was more than double the number  
of assessments resulting in medical retirement. The services and 
DOD could not provide GAO with extant data on how much it costs  
to make disability decisions or issue payments or how long it	 
takes. DOD does not provide special financial counseling on the  
use of lump-sum payments for members separating with a disability
severance payment. Rather, as part of transition assistance to	 
civilian life, financial counseling is available to all members  
at family service centers or within members' military units.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-622 					        
    ACCNO:   A00909						        
  TITLE:     DOD Disability: Overview of Compensation Program for     
             Service Members Unfit for Duty                                   
     DATE:   04/27/2001 
  SUBJECT:   Disability benefits				 
	     Federal employee disability programs		 
	     Severance pay					 
	     Military disability retirement pay 		 

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GAO-01-622

Report to the Chairman, Committee on Armed Services, House of
Representatives

United States General Accounting Office

GAO

April 2001 DOD DISABILITY Overview of Compensation Program for Service
Members Unfit for Duty

GAO- 01- 622

Page 1 GAO- 01- 622 DOD Disability

April 27, 2001 The Honorable Bob Stump Chairman Committee on Armed Services
House of Representatives

Dear Mr. Stump: This report responds to your request for information about
the Department of Defense?s (DOD) disability severance program that provides
a lump- sum payment for certain service members with a disability. You
requested this work as a follow- up to our previous report on disabled
veterans? interest in lump sum versus monthly disability payments. 1

We agreed to examine (1) how DOD administers its disability severance pay
for service members with less severe disabilities and the associated
administrative costs and coordination issues and (2) the extent to which the
military services provide financial counseling to service members receiving
disability severance (lump- sum) payments. As agreed with your office, we
interviewed DOD and service- level officials and examined pertinent DOD and
service- level documents. We conducted our work from January through April
2001 in accordance with generally accepted government auditing standards.

On April 19, 2001, we briefed your office on the results of our work. (See
app. I.) We requested oral comments from DOD on a draft of this report. DOD
provided technical comments, which we have incorporated as appropriate.

In summary, we found that the administration of disability severance, like
medical retirement pay, follows service- specific procedures using DOD
guidance. The services assess members? fitness for duty along a scale
ranging from 0 to 100 percent in gradations of 10. Members unfit for duty
who have 20 or more years of military service with any disability rating or
who are assigned a disability rating of 30 percent or higher receive medical

1 Veterans? Benefits: Veterans Have Mixed Views on a Lump Sum Disability
Payment Option (GAO- 01- 172).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 622 DOD Disability

retirement payment. In contrast, a lump- sum disability severance payment is
made to members unfit for duty who have less than 20 years of military
service and who are assigned a disability rating less than 30 percent. In
fiscal year 2000, the number of assessments resulting in disability
severance payment was more than double the number of assessments resulting
in medical retirement. The services and DOD could not provide us with extant
data on how much it costs to make disability decisions or issue payments or
how long it takes. However, service- level officials had some concern about
the long lead time that can elapse before a service member with an injury or
illness formally enters the disability evaluation system.

DOD does not provide special financial counseling on the use of lump- sum
payments for members separating with a disability severance payment. Rather,
as part of transition assistance to civilian life, financial counseling is
available to all members (including members retiring, separating, or
otherwise leaving the service) at family service centers or within members?
military units.

We are sending copies of this report to the Honorable Christopher H. Smith,
Chairman, House Committee on Veterans? Affairs, and the Honorable Donald H.
Rumsfeld, Secretary of Defense. We will also make copies available to others
upon request.

If you or your staff have any questions about this report, please contact me
on (202) 512- 7101 or Shelia D. Drake, Assistant Director, Education,
Workforce, and Income Security Issues, on (202) 512- 7172. Brett S.
Fallavollita and Michael J. Collins also made key contributions to this
report.

Sincerely yours, Cynthia A. Bascetta Director, Education, Workforce,

and Income Security

Appendix I Page 3 GAO- 01- 622 DOD Disability

Appendix I

Department of Defense Disability Compensation Program

Briefing for the House Armed Services Committee and the House Committee on
Veterans? Affairs

Appendix I Page 4 GAO- 01- 622 DOD Disability

2 Hill Briefing: DOD

Disability Compensation

 DOD compensates military service members who are determined to be ?unfit
for duty?-- unable to perform their military duties.

 VA compensates veterans who have a service- connected disability for an
average reduction in earning capacity they are expected to experience.

Disability Compensation in the Department of Defense (DOD) and the

Department of Veterans Affairs (VA)

Appendix I Page 5 GAO- 01- 622 DOD Disability

3 Hill Briefing: DOD

Disability Compensation

 Medical Retirement

 A monthly payment paid for life

 members unfit for duty who have 20 or more years of military service with
any disability rating or who are assigned a disability rating of 30 percent
or higher per VA?s Schedule for Rating Disabilities with any length of
service

 Disability Severance

 A one- time lump- sum payment

 members unfit for duty who have less than 20 years of military service and
who are assigned a disability rating of less than 30 percent

Types of DOD Disability Compensation

Appendix I Page 6 GAO- 01- 622 DOD Disability

4 Hill Briefing: DOD

Disability Compensation

 Medical Retirement

 Higher of: (1) Disability Rating x Retired Monthly Base Pay*

or (2) Years of Service x 2.5 x Retired Monthly Base Pay

 Severance Pay

 Monthly Base Pay x 2 x Years of Service (up to a maximum of 12 years)

*Retired base pay for those entering military service after September 7,
1980, is the average of the highest 36 months of basic pay.

Calculation of Disability Compensation

Appendix I Page 7 GAO- 01- 622 DOD Disability

5 Hill Briefing: DOD

Disability Compensation

 Medical Retirement

 96,270 total retirees

 2,347 new retirees

 Disability Severance

 8,486 service members

Number of Disability Compensation Recipients (FY?00)

Appendix I Page 8 GAO- 01- 622 DOD Disability

6 Hill Briefing: DOD

Disability Compensation

 $1.27 Billion in Medical Retirement Pay

 The average retiree received $13,060 for the year

 the average officer retiree received $24,260

 the average enlisted retiree received $8,380

 $159 Million in Disability Severance Pay

 The average member received $18,725 as a lump- sum payment

 the average officer received $51,065

 the average enlisted member received $17,750

Approximate Financial Outlays (FY?00)

Appendix I Page 9 GAO- 01- 622 DOD Disability

7 Hill Briefing: DOD

Disability Compensation

 Commanding Officer or Physician: refers member to Medical Treatment
Facility.

 Medical Treatment Facility: treats member, seeking maximum medical
benefit.

 Medical Evaluation Board: physician- centered assessment of member?s
meeting retention standards.

 Physical Evaluation Board: service- centered assessment of fitness for
duty.

 Informal: paper- based review

 Formal: board review involving appearance by member/ representative

 Service Headquarters: finalize decision.

Disability Evaluation System

Appendix I Page 10 GAO- 01- 622 DOD Disability

Source: GAO analysis of DOD documents. 8 Hill Briefing: DOD

Disability Compensation Member Returned to

Active Duty

MEB Refers Case to Physical Evaluation Board (PEB)

PEB: Is Member Fit for Duty? Member with

Medical Issue PEB:

Identifies Member?s

Disability Rating

PEB: Is Disability

Stable? Returned to Duty;

Separation Without Benefits;

Non- Disability Retirement Physician

Refers Member to

Medical Evaluation Board (MEB)

Years of Service

Placed on Temporary

Disability Retirement List

(TDRL), Re- Evaluated at Least Once Every 18 Months

Over Max. 5- Year Period,

and Receives Monthly Disability

Payment Member Separated with Lump Sum

Disability Severance Pay MEB:

Does Member Meet Medical

Standard for Retention?

Member Separated with

Lump Sum Disability Severance

Pay PEB: During 5- Year

Period Does Evaluation( s) Show Member

Is Fit for Duty?

Yes No

Yes No 0- 20%

30% or Higher

<20 Years R

R No

Yes No Yes

R DOD Disability Evaluation System

>20 Years

PEB: Is Disability

Stable? Is Rating

30% or Higher?

Yes

Does Member Have

Years of Service? >20

No No

No Yes Yes

Continue on TDRL

R = Medical Retirement: Member Receives Monthly Retirement Payment

Appendix I Page 11 GAO- 01- 622 DOD Disability

9 Hill Briefing: DOD

Disability Compensation

 About 22,780 cases evaluated by Physical Evaluation Boards.

 Army had the highest caseload (about 10,000).

 About 3 of every 4 cases were new cases, while remainder were cases from
the Temporary Disability Retirement List.

DOD Disability Caseload (FY?00)

Appendix I Page 12 GAO- 01- 622 DOD Disability

10 Hill Briefing: DOD

Disability Compensation

 Return to Duty??????????????????......... 18%

 Separation with Severance Pay??????????.?..?. 35%

 Medical Retirement??????..??.???????...?... 14%

 Temporary Disability Retirement List?????????....... 24%

 Medical Retirement- eligible and disability not stable

 5- year tenure maximum; periodic re- exams (18 months)

 minimum 50% base pay

 Other ??????????..??.?????????.??.. 9%

 For example, separation without benefits because disability was not in
line of duty or existed prior to service and not service aggravated

Disposition of Cases (FY?00)

Appendix I Page 13 GAO- 01- 622 DOD Disability

11 Hill Briefing: DOD

Disability Compensation

 DOD and services do not collect information on dollar costs or staff time
to:

 make a disability decision,

 issue lump- sum severance payment, or

 issue monthly disability retirement payment.

Administrative Costs

Appendix I Page 14 GAO- 01- 622 DOD Disability

12 Hill Briefing: DOD

Disability Compensation

 Long lead time can elapse before member formally enters Disability
Evaluation System.

 Reported Impact: Service member undergoing disability evaluation counts
against a unit?s ?end strength?? a lengthy evaluation process delays
replacement of member.

 Information from Medical Evaluation Board to Physical Evaluation Board can
be outdated or incomplete, causing case to be returned for more information.

Concerns Expressed by Some Military Service Representatives

Appendix I Page 15 GAO- 01- 622 DOD Disability (130017)

13 Hill Briefing: DOD

Disability Compensation

 Financial counseling on use of disability lump- sum payments is generally
provided within context of counseling offered to any service member leaving
the service.

 DOD/ services do not offer specific investment advice for disability lump-
sum severance payment.

 Members facing nondisability retirement options are offered financial
counseling to help make decision (accept/ decline Career Service Bonus lump-
sum payment).

 Little is known about members? use of disability lump- sum payments.

 Based on DOD experiences, some DOD officials advise giving plenty of time
and appropriate educational resources to help a person decide whether to
take a lump- sum payment.

DOD Financial Counseling

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