Summer 2013 – Don’t Disable Wounded Veterans With Money

Philanthropists who want to help must consider long-term incentives and put self-reliance at the heart of their giving

A fundamental principle of design in any public-policy program can be found in the ancient Hippocratic Oath: “First, do no harm.”

Unfortunately, many policies directed toward servicemembers and veterans recovering from wounds of various sorts violate this fundamental rule. While created out of an intention to help the wounded warrior, they often combine to yield a perfect storm of disincentives that can cause individuals to become passive dependents during a season of acute distress. Veterans unintentionally robbed of self-sufficiency lose crucial abilities to take part in all that American society has to offer.

This problem is far-reaching, entrenched, and serious, and I encourage philanthropists and non-profit organizations to take it into account when operating programs for helping veterans. Philanthropists should assess opportunities for giving with a gimlet eye: Perverse incentives and moral hazards can corrode veterans as much as anyone else. As with most recipients of aid, the best help is generally that which speeds the beneficiary toward the point where help is no longer needed.

When “help” can harm

For the sake of argument, let us examine a fictional soldier, Adam, and the forces that affect his reintegration into society. Adam is from a small town in Kentucky. Although he dropped out of college after his first year, he is the first member of his family to attend college at all. He joined the Army for several reasons: If you ask him, he might say he did it because “they attacked us.”

Four months into Adam’s deployment to Afghanistan’s Nuristan province, an improvised explosive device destroyed his Humvee, killing two other soldiers and seriously injuring Adam. He woke up at Walter Reed National Military Medical Center after two weeks of unconsciousness with a mild brain injury, amputation of his lower right leg, and minor shrapnel wounds to his remaining leg, arms, and face.

At first, Adam is just happy to be alive: although he is in some pain, his medical care is excellent and he feels confident that he will recover fully. He has headaches from the mild brain injury, and his shrapnel wounds are taking a while to heal, but his mother and girlfriend are there to nurse him back to health, and he is grateful. He can’t wait to learn to walk on his new prosthetic so that he can get back to Kentucky and go on with his life.

Adam has an interesting life: the President pinned on his Purple Heart, his Congressman visited him just last week, and the quarterback of his favorite team came by with an autographed jersey. He was invited to join Faith Hill on stage at a concert where 10,000 people gave him a standing ovation.

After six months, Adam can run again on his new prosthetic leg. A year after his injury, he starts his medical board process so that he can separate from military service, and eight months later he is a civilian. He goes to an advocacy group for disabled veterans for help filing his disability claim, and they insist that he apply for disability based not just on the lower leg amputation (which, in truth, is more of an inconvenience at this point), but also for the shrapnel wounds, mild traumatic brain injury (TBI), and for his bad dreams, which they call post-traumatic stress disorder (PTSD). Fortunately, his claim is handled rather quickly, and the government gives him a disability rating of 40 percent for the leg, an additional 10 percent for the scarring, plus 30 percent for the PTSD.

He is also offered the chance to go to vocational rehabilitation, or back to college on the greatly expanded new G.I. Bill. On the other hand, his counselor from the Department of Veterans Affairs says that he qualifies for something called “Individual Unemployability.” I.U. is a program where someone like Adam, whose injuries don’t add up to 100 percent disability, can receive compensation at the 100 percent rate as long as he doesn’t work. Adam feels like he could work, but the difference between compensation at 80 percent and 100 percent is significant (about $1,000 per month), and he wouldn’t have to make all the adjustments involved in going to work every day, so he applies for I.U. and receives it.

While “Adam” is fictional, his experience is very common to veterans wounded in the post-9/11 war on terror. These men and women are deserving of the praise, support, and love of their fellow Americans. It is in many ways a natural impulse to give them whatever they desire. But if we really want the best for these veterans we will be very careful in how we approach them with both public policy and private charity.

Cut off from healthy work and self-support

There are many Adams today who end up permanently and totally “disabled,” but not because of their injuries .Instead, they are being disabled by well-intentioned charity and governmental support that works as a massive impediment to their reintegration into mainstream society. Let us examine several of these forces.

Financial: Due to his injury, Adam receives $50,000 in Traumatic Servicemen’s Group Life Insurance. This money is intended to serve as a bridge to rehabilitation. During his recovery, Adam lives in lodging provided free of charge. He can eat for free at the hospital or other Army dining facilities. He also receives his full salary and other benefits.

Once he leaves the Army, Adam will receive a portion of his military retirement pay and all of his disability benefits from the Department of Veterans Affairs. Because he chose to apply for I.U., he will receive compensation from the V.A. at the 100 percent rate (around $2,800 per month). Depending on where and when he applies, he might qualify for Social Security Disability Insurance as well. SSDI is worth around $800 a month for someone like Adam. All told, his benefits package from the government could be worth in excess of $4,000 per month, most of which is tax-free. Considering that the national median earnings of 20- to 24-year-old males who work full time is $1,908 before taxes, he is doing well. It is in this environment that Adam must make a decision about whether to work or not. Because he loses his I.U. benefit and his SSDI if he begins to earn above a minimal amount, he faces a stiff financial penalty for beginning a job. Considering that he has only one year of college, it will initially be difficult to replace that income, much less exceed it.

Psychological: When considering the nature of disability, it is important to consider the difference between diagnosis and impairment. For someone like Adam, his diagnosis was serious at the beginning, but his residual impairment might be mild. So how “disabled” is Adam? From one perspective, he is not disabled at all: He is bright, strong, walks with a slight limp, and only occasionally has headaches or a sleepless night due to his TBI. On the other hand, Adam has just spent more than two years proving to the federal government that he is disabled, and not one but two federal programs have labeled him as “disabled.” It is relatively easy to imagine that he may begin to label himself disabled as well, with all of the negative psychological outcomes that can bring.

Social: A person’s work is a huge portion of how he relates to society, and a key part of his identity. Although each of us has many identities, our work-related identity is typically near the top of the list. Because Adam is labeled disabled by two federal programs, he decides not to get a job. As a result he meets fewer people. In fact, he is pretty isolated at home, and has a much smaller social network than someone who goes to work every day. He is involved in fewer social activities, and more likely to become depressed and experience other social dysfunction. More fundamentally, he doesn’t have the meaning and purpose that comes with work, even when it taxes us.

Charitable: Many charities have begun assisting veterans and wounded warriors in the last decade. Someone like Adam might be touched by a half-dozen or more groups providing him tickets to events, sporting equipment, cash, dinners, vacations, clothing, a place to live or housing services, and more. Each one of these types of support is provided with the best of intentions. If there isn’t some correlated effort to help Adam enter productive, self-supporting society, however, the downside is that these gifts can cumulatively sap the recipient’s willingness to earn those things for himself. It can be difficult for well-meaning donors to accept that this really does happen, but the reality matches the intuition: people value those things for which they strive, and tend to devalue those things that are given to them.

Obviously not every veteran responds to these incentives in the same way. Some people will take their disability payments and job re-training and make dramatic successes of themselves. Rep. Tammy Duckworth, Wounded Warrior Project board president Dawn Halfaker, Sen. John McCain, and many others have done just that. It’s critically important to realize, though, that the men and women who are able to resist the siren song of gifts, charity, and disability payments are often exceptional, and the system should be designed not to harm those who might be lured astray by poorly constructed incentives.

Real disability

The concept of “disability” is a key starting point for helping injured veterans navigate their recovery processes. At least two major models of disability exist, the first of which is the so-called “medical model.” The medical model of disability says that an amputee is “disabled” because of his limb loss.

A more modern approach is the broader “social model of disability,” which assumes that a physical ailment is only the first element of disability. The social model adds environmental and personal factors to the physical diagnosis. For example, a wheelchair user has much less mobility impairment in an environment free of wheelchair barriers (curbs, stairs, etc.). Similarly, personal factors at the individual and family level strongly affect the degree of disablement that a person will exhibit at the completion of their medical course of treatment. Many families are able to find “a new normal” after a family member becomes disabled; some are not. Some individuals are resilient in the face of daunting challenges; some crumble.

As a society, the United States has begun to shun the medical model in favor of the social model. The 1990 passage of the Americans with Disabilities Act reduced physical barriers in the built environment and required reasonable accommodation in the workplace. New prosthetic, computer, and drug technologies have had some revolutionary effects. Societal attitudes have changed.

The World Health Organization (WHO) also has adopted a social model of disability in its International Classification of Functioning, Disability, and Health. Most human-resources managers in businesses, government, and non-profit agencies now apply a social model of disability.

We’ve become accustomed to seeing amputees pass us on the ski hill. Children with disabilities are often put into “mainstream” classrooms. Adults with disabilities are accommodated at many kinds of jobs. Lots of us have watched co-workers find new employment niches with the help of retraining, computerized equipment, or other accommodations. Our views of what is possible and “normal” have been altered dramatically over the last generation.

A key concept for understanding disability today is appreciating that there is a difference between capacity and performance. Capacity is the best that an individual can be expected to do in a specific area of life. Performance is what that person actually does.

The goal of any program relating to persons with disabilities should be to narrow the capacity-performance gap. In some areas, technology is decisive: A computer that reads materials aloud for a person with dyslexia, for example, may eliminate the gap between capacity and performance entirely. Some prostheses can significantly narrow gaps in mobility, appearance, or performance, if not close them. Alternatively, the gap between capacity and performance may be widened by human behavior. Bullying or negative attitudes toward disability could pull a disabled person’s performance far below what he is capable of.

Many government programs acknowledge the social model of disability. For example, most disability employment programs run at the state level require some version of an Individualized Education Plan as part of the re-employment process.These plans take into account the particular strengths and weaknesses of the candidate before placing him into a tailored program of rehabilitation, education, or training in independent living.

Writing checks vs. building independence

Unfortunately, several major U.S. government programs rely on the old medical model rather than a social model. The Department of Veterans Affairs disability-compensation program is one. The V.A.’s statutory requirement is to compensate for disabilities based on “average loss of earnings” that would be expected in a worker with that particular diagnosis. What this means, in essence, is that the V.A. doesn’t base its compensation on disability at all, but rather around a diagnosis. By this definition, those athletes you see sprinting and swimming at the Paralympics, and the wounded veterans now working in many Wall Street banks, are “totally disabled.” Some injured servicemembers who remain on active duty and return to what they did before their injuries will, bizarrely, be labeled “totally disabled” once they leave the service. Clearly, the medical model leaves something to be desired.

The reason that disability systems and supports must be carefully designed is simple: The process of applying and proving that one is “disabled” can trigger a powerful set of social constructs in the disabled person, his family, and his community. Applicants can start to rely routinely on others. Personal aspiration can dry up. Passivity and dependence can become normal.

In their recent book The Declining Work and Welfare of People with Disabilities, economists Richard Burkhauser and Mary Daly study two massive federal programs—Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI)—and find that despite the last generation’s many new legal protections and forms of assistance for the disabled, their employment rates are at an all-time low, support rolls are rising, and household income among persons with disabilities is stagnant. The design of these programs makes work both “less attractive and less profitable” than passively receiving benefits. The positive effects of the Americans with Disabilities Act and other efforts at mainstreaming and integration, the researchers conclude, have thus been considerably nullified by carelessly designed entitlements.

Astonishingly, there are more Americans of working age receiving government disability checks today (more than 12 million) than there are paid workers in our entire manufacturing sector. Through our Social Security system alone, cash payments to individuals classified as disabled totaled $135 billion in the latest fiscal year. New York Times opinion writer Nicholas Kristof recently acknowledged that “this is painful for a liberal to admit, but…America’s safety net can sometimes entangle people in a soul-crushing dependency.”

The disability system for veterans is bedeviled with this problem. Benefits are predicated on an individual first proving a work-related disability or handicap, causing individuals to become economically and emotionally invested in their condition as a barrier. And the primary focus is on cash assistance, rather than on helping the individual get rehabilitated, retrained, and reoriented so he can engage in productive labor. The many psychological, social, and financial benefits of work are thus often lost to recipients.

Because systems giving cash to the disabled are filled with perverse incentives, Burkhauser and Daly suggest enhancing employment and offering other mainstreaming services, instead of just writing checks. They offer a series of reforms using the Dutch model of rewarding and thus incentivizing work.

The unfortunate incentives identified by Burkhauser and Daly may actually be worse for wounded warriors than for private-sector workers. Not only does the individual face the moral hazard of being tempted to substitute a cash entitlement for daily labor, but there is also a greater moral hazard for the employer. The Department of Defense bears no burden when an employee exits the military with a disability settlement, since the V.A. handles the caseload, and taxpayers pay the tab. The normal risks of simply cutting checks rather than undertaking the work of rehabilitation and integration are thus actually worsened by the nature of public employment.

Dramatic increases in compensation

It is a serious mistake to look at veterans overall as victims, or as a problem class. The earnings of veterans in this country are higher than those of non-veterans, and their poverty rate is half the general population’s. Post-9/11 servicemembers are on average healthier, more educated, and less likely to have a criminal record. Iraq and Afghanistan veterans as a group will be a valuable asset to America’s economy and society over the coming decades. It is only particular veterans working through transitions to civilian life, or struggling with specific personal burdens, who may need assistance from fellow citizens.

Despite the many assets of today’s young veterans, though, there are reasons for serious concern in current trends. A staggering 45 percent of Iraq and Afghanistan veterans are currently seeking compensation for service-connected disabilities. They are applying at more than twice the rate of troops who served in the 1990s Gulf War. Currently, about a third of all new veterans are being granted some level of disability. And the number of disabling medical conditions claimed by the average applicant has soared from 1 or 2 among post-World War II veterans, and 3 or 4 among Vietnam veterans, to 8.5 medical conditions per claimant among veterans who served in Iraq and Afghanistan.

Those are shocking numbers. They are influenced, however, by many inducements in today’s system, including V.A. procedures. The definition of disability in the V.A. system is such that most of these veterans are not “disabled” in the commonly used sense of the term. More accurate terminology would describe them as “having a service-connected condition.” The most prevalent service-connected condition in the V.A. system in 2011 was tinnitus (ringing in the ears), and the second-most prevalent was hearing loss.

Keep in mind that out of the 2.7 million servicemembers who have served in Iraq or Afghanistan, less than 14,000 were wounded in action seriously enough to merit evacuation from the theater. It is appropriate for the nation to spend whatever it takes to help seriously injured servicemembers recover their capacities.Thankfully, catastrophic injuries are less common among post-9/11 veterans than generally imagined. For example, there are a total of about 1,700 amputees. Approximately 250 Iraq-Afghanistan veterans are blind. About a hundred suffered spinal-cord injuries. And penetrating brain injuries total 4,174.

PTSD is the affliction most mentioned in popular discussions. It is a syndrome covering a very wide range of complaints, and estimating its prevalence is complicated by the fact that there have been at least two major policy changes in PTSD diagnosis and treatment. First, the V.A. no longer requires proof that a traumatic incident occurred. (Indeed some advocates argue that there need not be any precipitating incident, that PTSD can occur simply from an accumulation of occupational pressure.) Second, the V.A. actively seeks patients instead of just accepting them when they come.This latter decision gets more veterans into treatment, but also makes the total number much higher. Among Iraq and Afghanistan veterans, the Department of Veterans Affairs reported 217,082 cases of diagnosed PTSD as of the first quarter of the 2012 fiscal year, a significant increase in prevalence compared to previous generations of combat veterans.

The pitfalls of assistance without demands

A rich network of services for returning servicemembers would first treat acute and chronic medical needs, then provide rehabilitation services as needed, and finally help veterans gain and maintain useful employment, all roughly in that sequence. At each stage, the needs of the soldier or veteran can be met by federal programs, by assistance from state or local government, by non-profit groups of various stripes, or by individuals—family members, neighbors, church congregants, or donors.

When services are being offered to individuals, dangers can arise in the area of perverse incentives or unintended consequences.This is a well-known phenomenon in economics—well-intentioned policies or programs often create side-effects that are not at all what the program’s creator desired, but which can be as pronounced as (or even stronger than) the intended good result. It is a truism of public policy that “if you want more of something, subsidize it.” If the thing being subsidized carries downside risks, recipients may be hurt as well as helped.

This trend is visible in the stark growth of disability programs of all types over the last several decades. After reviewing the last generation’s 19-fold explosion of disability claimants (from 455,000 in 1960 to 8.6 million today), Washington Post columnist George Will warns that “gaming…of disability entitlements” has made work “neither a duty nor a necessity”—which is one major reason why the male labor force participation has plummeted from 89 percent in 1948 to 73 percent at present. Federal agencies like the Government Accountability Office have called repeatedly for serious reform of incentives in disability programs, warning that “low return-to-work rates may be due, in part, to the timing in which certain supports are offered to beneficiaries.”

It makes policymakers and taxpayers queasy to think that programs designed for good might instead be crippling intended beneficiaries, but it’s clear that poorly designed compensation programs can serve as a “headwind” that holds back veterans from long-term success. This isn’t just a risk with government entitlements. Some charitable programs designed to honor veterans can also have negative effects. That’s why giveaways which decrease a veteran’s desire to participate in the labor force need to be balanced via sweat-equity requirements, financial co-pays, and concrete expectations of employment as the recipient moves on. Those important details are lacking in most of today’s programs.

This warning that poorly designed assistance for veterans can actually hurt the intended beneficiary is rarely spoken, partly because it can so easily be attacked for demagogic purposes. But this is a hard reality, one I have observed both through years of academic specialization in this area and through personal experience. The second time I was wounded in Iraq I nearly lost my life, did lose my entire right leg, and ultimately required more than 40 operations before I could return to self-supporting work and family life.

During my year at the Walter Reed medical center I saw many soldiers who had been moderately wounded, like Adam, get sidetracked from their reentry into productive society by overly generous or poorly targeted programs. I myself was offered forms of help along the way that could have sidetracked my quest to regain independence. I was also blessed by wiser offers from generous helpers at hundreds of points along the way, and by a supportive and loving family. But far too many veterans are disabled by poorly designed incentives and programs before they even get out of the starting gate.

The vast preponderance of charitable assistance offered to veterans today does wonderful things, for men and women who wholly deserve support. And most of the individuals who have served our country in uniform will respond well to wise incentives, and end up as highly productive civilians. But as you feel inspired to undertake philanthropy for veterans, servicemembers, or their families (which I certainly hope you will consider), do so in smart and hard-headed ways. The flip side of avoiding bad incentives is the imperative to offer smart incentives. Donors who do so can dramatically increase the opportunities for today’s veterans to participate fully in the American dream without headwinds or handicaps.

This is excerpted from an introductory chapter of the Roundtable’s new book Serving Those Who Served: A Wise Giver’s Guide to Assisting Veterans and Military Families. LTC Daniel Gade, who holds a Ph.D. in public policy from the University of Georgia, teaches at the U.S. Military Academy. He served as a company commander in Iraq, where he was wounded in action twice and decorated for valor. Despite losing his right leg at the hip, he won his category at Ironman Arizona in 2010.

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