STATEMENT OF
DANIEL L. COOPER
UNDER SECRETARY FOR BENEFITS
DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE HOUSE
VETERANS’ AFFAIRS
SUBCOMMITTEE ON BENEFITS
THURSDAY, APRIL 11, 2002
Mr.
Chairman and Members of the Subcommittee, thank you for the opportunity
to testify today on several legislative items of interest to the
Department of Veterans Affairs (VA). Accompanying me today are Robert
Epley, Associate Deputy Under Secretary for Policy and Program
Management, and John Thompson, Deputy General Counsel.
Before I
discuss the bills the Subcommittee is considering today, I would like to
note that, as you know, these measures would affect direct spending and
receipts and, therefore, would be subject to pay-as-you-go (PAYGO)
rules. Accordingly, the support VA expresses here for the subject bill
provisions is contingent on accommodating the provisions within the
budget submitted by the President.
H.R. 1108
First, Mr. Chairman, I would
like to provide VA’s views on H.R. 1108. This bill would amend 38 U.S.C.
§ 103(d) to remove the bar on the payment of Dependency and Indemnity
Compensation (DIC) benefits to surviving spouses who remarry after
age 55. VA supports enactment of this legislation.
The DIC program provides tax‑free monthly
benefits to the surviving spouses of veterans who die in or as a result
of military service. Current law denies DIC during periods of surviving
spouses’ subsequent marriages or (in cases not involving remarriage)
during periods when they live with another person and hold themselves
out openly to the public to be that persons’ spouses.
DIC was created for two
purposes: to replace family income lost due to the servicemember’s or
veteran’s death and to serve as reparation for the death. In 1956, the
Servicemen’s and Veterans’ Survivor Benefits Act replaced the
preexisting death compensation program and the $10,000 Servicemen’s
Indemnity Act payment with DIC. The House Select Committee on Survivor
Benefits explained, in a 1955 report, H.R. Rep. No. 84-993, that, “these
two separate and distinct survivor benefit programs . . . would become
one. To this limited extent one of the objectives of the committee,
greater simplicity, would be accomplished and the long‑term interest and
equity of survivors protected.” This Act established a monthly DIC rate
for widows consisting of a fixed rate plus a percentage of the basic pay
prescribed for the deceased servicemember’s pay grade and length of
service. It is apparent from this Committee Report that the fixed rate
represented the “indemnity” or reparation element of the compensation
and the percentage of the deceased servicemember’s basic pay represented
the “dependency” or income-replacement element. In this manner, DIC was
intended to meet, at least in part, the Government’s obligation to those
who died in the defense of our country. An expansion of eligibility for
DIC would well serve this purpose for the following reasons.
Marital decisions often involve
consideration of economic consequences, and often those consequences are
different for older surviving spouses, who may no longer
be in the job market
and who may have insufficient income apart from DIC to maintain a basic
standard of living regardless of whether they remarry. The
beneficiaries targeted by this proposal are particularly disadvantaged
by loss of DIC upon remarriage because they are often retired or
contemplating retirement, may be disabled, and may be living on a fixed
income. Those whose deceased-veteran spouses had been severely disabled
may have foregone careers of their own in order to care for them. Thus,
they are often unable to offset lost DIC by earnings or other income.
Furthermore, when a surviving spouse of advanced age remarries,
termination of DIC may impose severe financial hardship because the new
spouse, similarly advanced in age, is generally preparing for retirement
or is already retired, may be disabled, and may be living on a fixed
income. In other words, the new spouse also may have limited income and
may be unable, because of age or disablement, to augment it. To the
extent the DIC program was intended to provide a replacement for a
veteran’s contribution to household support, this contribution is still
necessary for a surviving spouse of advanced age even if the surviving
spouse remarries, because remarriage often does not adequately provide
for his or her subsistence needs. Further, to the extent that DIC
provides indemnification for the veteran’s death, the basis for
compensation is not eliminated by the surviving spouse’s remarriage.
The new provision would assist surviving
spouses by allowing those over age 55 to maintain their standards of
living, thus removing any economic disincentive to remarriage. A
veteran’s surviving spouse would be able to enter into a second marriage
without fear of economic deprivation, and the elderly couple would be
permitted to live together in comfort and dignity—legally married.
Benefits for surviving spouses of military
retirees through the Department of Defense’s (DoD) Survivor Benefit Plan
do not terminate if remarriage takes place at age 55 or thereafter. In
addition, we note that Social Security survivors’ benefits do not
terminate if remarriage takes place at age 60 or thereafter. The
proposed amendment would thus better align DIC benefits with benefits
provided to surviving spouses of military retirees under DoD’s Survivor
Benefit Plan and to surviving spouses under the Social Security
program.
This amendment is subject to the
PAYGO limitations of the Omnibus Budget Reconciliation Act of 1990. If
enacted, it would increase direct spending in VA benefits programs. VA
estimates that enactment of this provision would result in benefit costs
of $269 million for the five‑year period Fiscal Year (FY) 2003 through
FY 2007 and $749 million for the ten-year period FY 2003 through
FY 2012.
H.R. 2095
The next bill I will discuss, Mr. Chairman,
is H.R. 2095. This measure would reduce the VA home loan funding fee
paid by Reservists to the same level at most other veterans. VA
supports this proposal to eliminate the additional .75 percent of the
loan amount currently imposed on Reservists to obtain VA housing loan
benefits.
In 1992, the Congress granted VA housing
loan entitlement to persons whose only military service was in the
Selected Reserve (including the National Guard). To be eligible for
these benefits, Reservists must have completed 6 years of honorable
service in the Selected Reserve, or have been released earlier for a
service-connected disability. Entitlement for Reservists sunsets
September 30, 2009. In most cases, Reservists pay a funding fee that is
.75 percent higher than the fee charged veterans
who served on extended active duty. For
example, Reservists who have never used VA housing benefits before would
pay a 2.75 percent fee to obtain a no-downpayment loan to purchase a
home. Generally, veterans with qualifying active duty would pay a 2
percent fee to obtain the same loan. Veterans entitled to compensation
for service-connected disabilities are exempt from the fee.
Under H.R. 2095, Reservists would pay the
same fee currently charged other veterans.
In recent years, there has been an increased
emphasis on the use of Reservists as part of the Armed Forces actively
employed for national defense. Many members of the Reserves and
National Guard were activated following the terrorist attacks of
September 11, 2001. They have played and continue to play a vital role
in support of our active forces and in homeland security. In addition,
Reservists have been deployed to other trouble spots around the world
such as Bosnia, Kosovo, and the Persian Gulf. In recognition of the
importance of the Selected Reserve to our current defense efforts, VA
supports this measure.
VA estimates that enactment of H.R. 2095
would result in PAYGO costs of approximately $3.27 million in the first
year and approximately $32.66 million through FY 2009.
H.R. 2222
Mr. Chairman, VA supports the enactment of
H.R. 2222. This bill would make improvements to various life insurance
programs for veterans. The bill’s estimated PAYGO costs are $93.9
million over five years.
Section 2 of H.R. 2222 would
authorize the payment of unclaimed
National Service Life Insurance (NSLI) and United States Government Life
Insurance (USGLI) proceeds to an alternate beneficiary.
Under current law, there is no
time limitation under which a named beneficiary of an NSLI or USGLI
policy is required to file a claim for proceeds. Consequently, when the
insured dies and the beneficiary does not file a claim for the proceeds,
VA is required to hold the unclaimed funds indefinitely in order to
honor any possible future claims by the beneficiary. VA holds the
proceeds as a liability. While extensive efforts are made to locate and
pay these individuals, there are cases where the beneficiary simply
cannot be found. Under current law, we are not permitted to pay the
proceeds to a contingent or alternate beneficiary unless we can
determine that the principal beneficiary predeceased the policyholder.
Consequently, payment of the proceeds to other beneficiaries is
withheld.
A majority of the existing
liabilities of unclaimed proceeds were established over ten years ago.
As time passes, the likelihood of locating and paying the principal
beneficiary becomes more remote. In fact, the older the liability
becomes, the more unlikely it is that it will ever be paid even though
other legitimate heirs of the insured have been located.
Section 2 of H.R. 2222 would grant the
Secretary authority to authorize payment of NSLI and USGLI proceeds to
an alternate beneficiary when the proceeds have not been claimed by the
named beneficiary within two years following the death of the
policyholder or within two years of this bill’s enactment, whichever is
later. The principal beneficiary would have two years following the
death of the insured to file a claim.
Afterwards, a
contingent beneficiary would then have two years to file a claim.
Payment would be made as if the principal beneficiary had predeceased
the insured. If there were no contingent beneficiary to receive the
proceeds, payment would be made to those equitably entitled, as
determined by the Secretary. As occurs under current law, no payment
would be made if payment would escheat to a State. Such payment would
be a bar to recovery of the proceeds by any other individual.
Section 2 of the bill would
apply retroactively as well as prospectively, and is similar to the
time-limitation provisions of the Servicemembers’ and Veterans’ Group
Life Insurance programs and the Federal Employees Group Life Insurance
program.
Insofar
as payment to beneficiaries is made from the insurance trust funds,
there are no direct appropriated benefit costs associated with this
section of the bill. The liabilities are already set aside and would
eventually be paid, either as payment to beneficiaries that eventually
claim the proceeds, or released from liability reserves and paid as
dividends.
There
are approximately 4,000 existing policies in which payment has not been
made due to the fact that we cannot locate the primary beneficiary,
despite extensive efforts. Over the years, the sum of moneys held has
aggregated to approximately $23 million. On a yearly basis, about 200
additional policies (with an average face value of $9600, or
approximately $1.9 million annually) are placed into this liability
because the law prohibits payment to a contingent beneficiary or to the
veteran’s heirs. It is estimated that approximately two-thirds of the
4,000 policies will eventually be paid as a result of this legislation.
Additionally, in anticipation of the fact that VA will not be able to
pay about one-third of these policies, nearly $7 million has already
been released to surplus and made available for dividend distribution.
VA estimates that the enactment
of this section would result in PAYGO costs of $15 million during FYs
2003-2007 and a total of $25 million during FYs 2003-2012.
Adjudication of these 4,000
policies would entail administrative costs of approximately $154,000,
representing two full-time employee equivalence (FTE) in claims
processing and support. Approximately 94 percent of this cost would be
reimbursed to the Veterans Benefits Administration’s General Operating
Expense (GOE) account from the surplus of the trust funds, leaving about
$9,000 in government costs (which assumes that about six percent of the
policies are Service-Disabled Veterans Insurance, which has no surplus
and for which appropriated funds are used to cover administrative
costs).
Section 3 of H.R. 2222 would
reduce the premium rates for Service-Disabled Veterans Insurance (S‑DVI)
by prospectively changing the mortality table upon which premiums are
based. The S‑DVI program was intended to provide service-disabled
veterans with the ability to purchase insurance coverage at "standard"
premium rates. S-DVI premiums are currently based on an old mortality
table, i.e., the 1941 Commissioners Standard Ordinary (CSO) Mortality
Table with 2.25 percent interest. In 1951, when this program began,
these premium rates were competitive with commercial insurance policy
rates. Insofar as life expectancy has significantly improved over the
past fifty years, a more recent mortality table would reflect lower
mortality and, hence, lower premium rates. Section 3 would provide that
S-DVI premiums be based on the 1980 CSO Basic Mortality Table with an
interest rate of five percent. While just changing to a more recent
mortality table would assist new entrants into the program, it
would not render any assistance to those
already insured under the program unless the new mortality table, with
its inherent lower premiums, was made available to them also.
Section 3 of this bill would
provide service-connected disabled veterans parity with the average
American’s ability to purchase adequate amounts of life insurance at
competitive rates. This section of H.R. 2222 would ensure that service-
connected disabled veterans have the ability to obtain life insurance at
standard premium rates without regard to their physical disabilities.
Our goal is to provide insurance protection to veterans who have lost
their ability to purchase commercial insurance at standard (healthy)
rates because of their service-connected disabilities. Participants
receive a subsidy equal to the difference between the premiums they pay
– which account for age but not disabilities – and the actual cost of
coverage.
VA estimates that the enactment
of section 3 of H.R. 2222 would result in PAYGO costs of $66 million
during FY 2003-2007 and a total of $150.7 million during FYs 2003-2012.
Section 4 of H.R. 2222 would
increase the maximum coverage under the Veterans’ Mortgage Life
Insurance (VMLI) program to $200,000. VMLI provides mortgage life
insurance coverage to certain severely service-disabled veterans who
have received specially-adapted housing grants from VA. The insurance
is intended to pay off the outstanding balance of the mortgage in the
event of the veteran's death. The current maximum amount of VMLI
allowed an eligible veteran is $90,000.
The maximum amount of mortgage
life insurance was last increased on December 1, 1992, when it was
raised from $40,000 to $90,000. This resulted in the VMLI program
covering a high percentage (91 percent) of the total mortgage balances
that these severely disabled veterans held.
With the increase in housing costs over the past nine years, the
percentage of total mortgage balances covered has decreased
significantly.
As of the start of this fiscal
year, the VMLI program was providing $201 million of coverage while the
outstanding mortgage balances for these veterans totaled $255 million.
The coverage percentage has declined from 91 percent to 79 percent.
This points to the inadequacy of the VMLI current maximum of $90,000.
If the maximum coverage amount were increased to $200,000, the program
would cover 98 percent of the total mortgage balances outstanding. The
need for the increase is even more compelling if viewed from the
perspective of the number of veterans in the VMLI program who have their
entire mortgage balances insured. At the current level of $90,000, only
62 percent of participants have their entire mortgage balance covered.
This means that in 38 percent of the cases, if the veteran died, the
survivors would still have mortgages remaining on their homes. If the
maximum were raised to $200,000, 98 percent of participants would be
able to have their mortgages fully covered.
The VMLI program is subsidized
with appropriated funds since these veterans are charged standard
premium rates. An increase in the maximum coverage amount to $200,000
would affect 1,286 of the 3,385 veterans covered by the program. While
the premiums charged these veterans would increase, the subsidy required
from the government would also rise. A consulting team of Systems Flow,
Economic Systems, Macro International, and Hay Group recently completed
a Program Evaluation of Benefits for Survivors of Veterans with
Service-Connected Disabilities, and many of the provisions of the
proposed bill, including the provisions of this section, are consistent
with the recommendations of that evaluation.
VA
estimates that the enactment of section 4 of H.R. 2222 would result in
PAYGO costs of $10.8 million during FYs 2003-2007 and a total of $28.4
million during FYs 2003-2012.
Section 5 of H.R. 2222 would provide that
Veterans’ Mortgage Life Insurance (VMLI) may be carried by the insured
beyond age 70, but would limit new issues to ages 69 and below.
These policy provisions are fairly comparable to those of commercial
life insurance policies, except for the VMLI provision that coverage
terminates at age 70. As part of the Program Evaluation of Benefits
for Survivors of Veterans with Service-Connected Disabilities, the
contracting company, Systems Flow, compiled a report, "VA Insurance and
DIC Programs - Profile of Users and Non-Users and Beneficiaries," of the
VA insurance and DIC programs. This report included a finding that,
among users whose VMLI insurance was terminated, 12 percent of them had
their insurance terminated due to their reaching age 70. Because of
such terminations, VA is not providing financial security to the
veterans' families.
Insofar as premium income for
the VMLI program only covers about 25 percent of claims costs, this is a
relatively heavily subsidized program. However, since it is only open
to a small group of veterans (those eligible for specially-adapted
housing), the increase in the subsidy to allow coverage past age 70 is
relatively nominal. The provisions of this section are consistent with
the recommendations of the before-mentioned Program Evaluation Report.
VA estimates that the enactment of section 5
of H.R. 2222 would result in PAYGO costs of $2.1 million during FYs
2003-2007 and a total of $5.3 million during FYs 2003-2012.
H.R. 3731
The final bill
I will be discussing today, Mr. Chairman, is H.R. 3731. This bill
provides for an increase in the annual limit on funds available to
compensate State approving agencies (SAA’s) for work undertaken on
behalf of VA, including approving educational institutions and programs
for which veterans and other entitled participants receive
VA-administered education benefits. VA supports this bill.
H.R. 3731
would increase the annual limit on funds available to compensate SAA’s
from $14,000,000 in FY 2002 to $18,000,000 in FY 2003. The amounts for
FYs 2004 and 2005 would increase by 3 percent each year ($18,540,000 in
2004, $19,096,000 in 2005). Funding for FY 2006 and each succeeding
fiscal year would remain fixed at the FY 2005 level. (If there is no
change to the current law, the $14,000,000 level of funding will revert
to $13,000,000 for FY 2003 and thereafter.) This bill also specifies
that the various SAAs would receive the same proportion of payments
under the newly allocated funding limits as they would receive if those
funding limits did not exist.
Because of the cost-of-living pay increases
mandated by State law, salaries for State employees have gone up since
the last SAA funding increase in 1994. Additionally, over the last two
years, the SAAs have been called upon to perform new and time-consuming
duties as part of their mission. For example, Public Law 106-419,
enacted on November 1, 2000, initiated the licensing and certification
test payment program and allowed VA to delegate the approval
responsibility under the program to the SAAs. The SAAs accepted this
additional responsibility even though it was not covered in their
contracts.
In recent years, a number of SAAs have
worked closely with private industry and State and local governments to
encourage placement of veterans in apprenticeship and on-job training
programs. However, many other SAAs that wanted to do more outreach
could not do so due to a lack of resources. Now, newly-enacted Public
Law 107-103 requires SAAs, in addition to VA, to actively promote the
development of VA programs of on-job training (including apprenticeship
programs). Furthermore, that law requires SAAs to conduct outreach
programs and provide outreach services to eligible persons and veterans
about education and training benefits available under applicable Federal
and State laws. Clearly, increased funding is needed to enable the SAAs
to carry out these additional duties effectively .
VA estimates that enactment of this
provision would result in PAYGO costs of $5 million for FY 2003, $29
million for the five‑year period FY 2003 through FY 2007, and $59
million for the ten-year period FY 2003 through FY 2012.
Thank you, Mr. Chairman. I will be pleased
to answer any questions you or other members of the Subcommittee may
have.
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