As we celebrate Veterans Day this year, the 50th anniversary of the founding of America’s volunteer military, growing concerns about federal debt, a looming budget impasse, and a military recruiting crisis urge us to look at the causes and consequences of the massive increases in the U.S. Department of Veterans Affairs budget in recent years.
From 2000 to 2022, the VA’s overall budget increased from $76 billion to $267 billion (in 2022 dollars), despite a 30% decline in the veteran population over the same period (from 26.4 million to 18.4 million). As a result, U.S. Department of Veterans Affairs’ annual spending per veteran increased five-fold, from $2,900 to $14,500. This increase is driven in part by an aging veteran population, rising health care costs, and much-needed improvements to VA medical facilities.
But the biggest driver of the VA’s steadily expanding budget has been an unprecedented increase in veterans’ enrollment in disability compensation, a program designed by the VA to compensate American veterans for injuries sustained or aggravated during their service. The percentage of veterans receiving disability compensation benefits has been growing rapidly and is at an all-time high. Between 1954 and 2000, the percentage of veterans receiving disability compensation remained very stable, fluctuating between 8% and 10%. Today, of the nation’s 18.5 million veterans, about 30% receive disability compensation.
In addition, the average annual payment to veterans receiving disability pensions has increased significantly, from approximately $12,000 in 2000 to $21,000 today. This increase is due to a significant increase in the disability ratings, which result in higher payments to veterans who are deemed more severely disabled.
Between 2000 and 2022, the number of disability recipients in the 70th percentile or higher increased sevenfold (from 340,000 to 2.66 million), while the number in the 10th or 20th percentile remained virtually constant (from 1.23 million to 1.3 million). The rating system used by the VA encourages disability recipients to apply for higher ratings, potentially discouraging them from improving their health.
With total annual expenditures for disability compensation increasing from $28 billion to $112 billion, VA spending on this program is now 83 percent of that of Social Security Disability Insurance, the largest federal disability program, which insures 10 times as many adults. Moreover, because veterans who receive disability compensation benefits are now more eligible to receive VA health care services, the increase in enrollment in the program has simultaneously contributed to a large increase in VA health care spending (another major item in the VA budget).
By comparison, the VA spends just $10 billion a year on education benefits such as the VA Aid Act, and just $1.5 billion a year on Veterans Preparation and Employment, a program designed to help veterans with service-connected disabilities obtain stable, suitable employment.
The primary driver of the increase in disability compensation enrollment is a series of regulatory and policy changes over the past two decades (most recently the 2022 PACT Act) that have steadily made it easier for veterans to apply for and qualify for disability compensation for a wider range of medical conditions. As a result of these changes, approximately 40 percent of veterans who served since 1990 now receive disability compensation benefits.
While some might think that these high rates of disability compensation are the result of improvements in battlefield medicine and the long-term effects of combat deployments to Iraq and Afghanistan, recent studies suggest otherwise.
Veterans who enlisted after 2010 have some of the highest rates of disability coverage, even though they are significantly less likely to deploy and at much lower risk of being injured during deployment: Only 1% of Army members who enlisted between 2010 and 2015 were injured in combat.
Given how easy it has become to qualify for disability benefits, it may not be surprising that 5,000 pilots who passed Federal Aviation Administration physicals are now under investigation for receiving VA disability benefits for conditions that should not have made them eligible for the cockpit.
So why does this matter? Additional funding from disability compensation programs could improve the economic well-being of some veterans. But previous research by the two of us and other co-authors has documented that disability compensation significantly reduces veterans’ employment.
The health effects of the program have also been mixed: Despite rising numbers of people enrolled in disability benefits and the associated increases in VA spending, veterans’ mental health, as measured by suicide rates, has worsened compared with nonveterans of the same age and sex, a trend that cannot be explained by combat deployments.
Although some recent studies have found evidence that disability payments may improve preventive care efforts and reduce hospitalizations among Vietnam-era veterans with diabetes, there is little evidence that they reduce veteran mortality or improve other measurable health outcomes.
And if the increase in disability benefits is due to deteriorating veterans’ health, rather than due to policies that make it easier for veterans to access disability benefits, it could inadvertently reinforce the “broken veteran narrative” and contribute to the worst military recruitment crisis since the introduction of an all-volunteer military.
In fact, recent studies have cited concerns about physical injury and mental distress as the primary reasons young people don’t consider joining the military. Unfortunately, these stories dwarf other studies that show that serving in the Army increases average earnings by more than $4,000 over the 19 years after enlisting, with black service members and those from disadvantaged backgrounds experiencing even larger earnings increases.
If the VA’s per-veteran spending had remained the same since 2000, in inflation-adjusted terms, its total budget would have been about $60 billion in 2022, instead of $267 billion (and growing). We are not advocating for cutting the VA’s budget. On the contrary, broad bipartisan support for veterans, such as significant spending on veterans’ health care, education benefits, and other support services, may help explain why military service increases income and why combat deployments increase a soldier’s immediate risk of death or injury but have little adverse effect on their health in the long term.
But it is time to ask whether an increasingly generous disability compensation system that drastically reduces employment opportunities for veterans and bears little resemblance to the system that existed in the late 20th century is the best way to reward and honor America’s veterans while also inspiring today’s young people to serve their country in the military.
Kyle Greenberg is an associate professor of economics in the School of Social Sciences at West Point. Mark Duggan is the Trione Director of the Stanford Institute for Economic Policy Research (SIEPR) and the Wayne and Jody Cooperman Professor of Economics at Stanford University.