Pension United States. Congress. House. Committee on Veter.

Operation of VA life insurance programs : hearing before the Subcommittee on Compensation, Pension, and Insurance of the Committee on Veterans' Affairs, House of Representatives, One Hundred Third Congress, first session, September 23, 1993 online

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OPERATION OF VA UFE INSURANCE PROGRAMS



Y 4. V 64/3: 103-27



HEAEING

BEFORE THE

SUBCOMMITTEE ON
COMPENSATION, PENSION, AND INSURANCE



OF THE



COMMITTEE ON VETERANS' AFFAIRS
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

FIRST SESSION



SEPTEMBER 23, 1993



Printed for the use of the Committee on Veterans' Affairs

Serial No. 103-27




JUL 1 9 mh



U.S. GOVEIWMENT PRINTING OFFICE
'*~^^ « WASHINGTON : 1994



For sale by the U.S. Government Printing Office
Supenntendent of Documents. Congressional Sales Office, Washington. DC 20402
ISBN 0-16-0AA228-1



)0 3

OPERATTON OF VA UFE INSURANCE PROGRAMS

4. V 64/3: 103-27

HEARING

BEFORE THE

SUBCOMMITTEE ON
COMPENSATION, PENSION, AND INSURANCE

OF THE

COMMITTEE ON VETERANS' AFFAIRS
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

FIRST SESSION



SEPTEMBER 23, 1993



Printed for the use of the Committee on Veterans' Affairs

Serial No. 103-27




JUL 1 9 1S34



U.S. GOVERNMENT PRINTING OFFICE
76-302 cc WASHINGTON : 1994



For sale by the U.S. Government Printing Office
Superintendent of Documents. Congressional Sales Office, Washington, DC 20402
ISBN 0-16-044228-1



COMMITTEE ON VETERANS' AFFAIRS
G.V. (SONNY) MONTGOMERY, Mississippi, Chairman



DON EDWARDS, California

DOUGLAS APPLEGATE, Ohio

LANE EVANS, Illinois

TIMOTHY J. PENNY, Minnesota

J. ROY ROWLAND, Georgia

JIM SLATTERY, Kansas

JOSEPH P. KENNEDY, II, Massachusetts

GEORGE E. SANGMEISTER, niinois

JILL L. LONG, Indiana

CHET EDWARDS, Texas

MAXINE WATERS, California

BOB CLEMENT, Tennessee

BOB FILNER, CaUfomia

FRANK TEJEDA, Texas

LUIS V. GUTIERREZ. Illinois

SCOTTY BAESLER, Kentucky

SANFORD BISHOP, Georgia

JAMES E. CLYBURN, South Carolina

MIKE KREIDLER, Washington

CORRINE BROWN, Florida



BOB STUMP, Arizona
CHRISTOPHER H. SMITH, New Jersey
DAN BURTON, Indiana
MICHAEL BILIRAKIS, Florida
THOMAS J. RIDGE, Pennsylvania
FLOYD SPENCE, South Carolina
TIM HUTCHINSON, Arkansas
TERRY EVERETT, Alabama
STEVE BUYER, Indiana
JACK QUINN, New York
SPENCER BACHUS, Alabama
JOHN LINDER, Georgia
CLIFF STEARNS, Florida
PETER T. KING, New York



Mack Fleming, St<rff Director and Chief Counsel



SUBCOMMITTEE ON COMPENSATION, PENSION, AND INSURANCE
JIM SLATTERY, Kansas, Chairman



DOUGLAS APPLEGATE, Ohio

LANE EVANS, lUinois

GEORGE E. SANGMEISTER, Illinois

CHET EDWARDS, Texas

FRANK TEJEDA, Texas



MICHAEL BILIRAKIS, Florida
TERRY EVERETT, Alabama
CUFF STEARNS, Florida
PETER T. HNG, New York



(n)



CONTENTS



September 23, 1993

Pace

Operation of VA Life Insurance Programs 1

OPENING STATEMENTS

Chairman Slattery 1

Hon. Michael BiUrakis 1

WITNESSES

Vogel, R. John, Deputy Under Secretary for Benefits, Department of Veterans
Affairs, accompanied by Tom Lastowka, Director, Pniladelphia Regional
Office and Insurance Center, and Paul Koons, Assistant director for Insur-
ance 2

Prepared statement of Mr. Vogel 25

Dupree, Clifton E., Associate Legislative Director, Paralyzed Veterans of

America 14

Prepared statement of Mr. Dupree 45

Rhea^ Larry D., Deputy Director of Legislative Affairs, Non Commissioned

Officers Association 15

Prepared statement of Mr. Rhea 49

Manhan, Bob, Assistant Director, National Legislative Service, Veterans of

Foreign Wars 16

Prepared statement of Mr. Manhan 54

Violante, Joseph A., Legislative Counsel, Disabled American Veterans 20

Prepared statement of Mr. Violante 57

Partridge, Colonel Charles C, USA (ret.), Le^slative Counsel, National Asso-
ciation for Uniformed Services Society of Military Widows 22

Prepared statement of Colonel Partridge 69

MATERIAL SUBMITTED FOR THE RECORD

Statement:

The Americfm Legion 72

(ra)



OPERATION OF VA LIFE INSURANCE
PROGRAMS



THURSDAY, SEPTEMBER 23, 1993

House of Representatives,
Subcommittee on Compensation, Pension,

AND Insurance,
Committee on Veterans' Affairs,

Washington, DC.
The subcommittee met, pursuant to call, at 10:05 a.m., in room
334, Cannon House Office Building, Hon. Jim Slattery (chairman
of the subcommittee) presiding.
Present: Representatives Slattery, Bilirakis, and King.

OPENING STATEMENT OF CHAIRMAN SLATTERY

Mr. Slattery. Good morning, ladies and gentlemen. The sub-
committee will come to order.

We are meeting this morning in hear from the VA and the veter-
ans' service organizations on the operation of the VA's life insur-
ance programs.

The last oversight hearing on these programs was held on July
19, 1989. For many years we have observed the operation of the
insurance programs as having been one of the bright spots in the
Department of Veterans Affairs. As far as I can tell, the VA contin-
ues to do an excellent job in administering or supervising the eight
programs which provide life insurance coverage of more than $506
billion to some 6.3 million veterans and active duty personnel. This
view appears to be shared by the veterans groups, and I want to
commend each and every VA employee who has played a role in
maintaining this high level of performance.

Since our last hearing there have been several legislative
changes made, particularly in the servicemens', and veterans',
group life insurance programs, and in the veterans mortgage life
insurance program. This hearing will give us an opportunity to de-
termine the impact of these changes and to hear from the VA on
the current status of these programs. It will also provide the VA
and the major veterans' service organizations a forum to discuss
any concerns or ideas as to potential modifications that may be
beneficial to veterans and their dependents.

Before we proceed with our first witness, I want to recognize my
good friend from Florida, Mike Bilirakis for any comments that he
might have.

OPENING STATEMENT OF HON. MICHAEL BILIRAKIS

Mr. Bilirakis. Thank you, Mr. Chairman.

(1)



Mr. Chairman, before I go to my very brief comments which basi-
cally paraphrase or follow yours, I would just like to formally recog-
nize that this is the first subcommittee hearing since we read about
your announcement that you would be retiring from the House of
Representatives. We came in together in 1982, you on one side of
the aisle, I on the other. For the most part, we have voted alike,
particularly when it came to veterans programs and fiscally con-
servative issues.

Jim, it has been good working with you. I know we are going to
have a number of hearings the rest of this Congress, but I just
wanted to say that.

Mr. Slattery. Thank you, Mike. We have a lot of work ahead
of us on this subcommittee, and I want to get it done before I leave.

Mr. BiLlRAKlS. That is good. Thank God for that. I commend you
for holding today's hearing. As I understand it, I remember our last
insurance oversight hearing was held 4 years ago, but since so
many veterans rely on these programs, including myself, by the
way, I have one of those old NSLI policies that I have kept in force
for more years than I care to even announce.

This hearing is very important to insure that the VA's insurance
programs continue to function properly. As we know, the VA ad-
ministers eight programs which provide life insurance coverage to
over six million veterans and active duty personnel.

I was just kind of going over these acronyms for the eight pro-
grams. It just blows your mind the way we depend on acron5ans up
here, new language, if you will, but as you said, and I certainly en-
dorse, the VA's management of its insurance programs has received
such high marks from the veterans' service organizations. In the
last 4 years, of course, there have been changes, and, like you, I
am anxious to see what impact, if any, these changes have had in
the programs, and I look forward to hearing fi-om our witnesses.
Thank you, sir.

Mr. Slattery. Okay, thank you, Mike.

Our first witness is Mr. John Vogel, the Deputy Under Secretary
for Benefits, who is accompanied by Mr. Tom Lastowka, the Direc-
tor of the Philadelphia insurance center.

We appreciate, by the way, the thorough detail you provided in
your statement, and it gives us a very good foundation for our in-
formational papers which we share with our Members, so thank
you very much for the thorough information that you provided.

Good morning, John, and we are glad you are with us today, and
Tom, welcome, we will look forward to your testimony.

Mr. VOGEL. Thank you, Mr. Chairman.

Mr. Slattery. By the way, we are also going to recognize Mr,
Paul Koons, the Assistant Director of Insurance. Good to have you
here, too, Paul. Okay, John.

STATEMENT OF R. JOHN VOGEL, DEPUTY UNDER SECRETARY
FOR BENEFITS, DEPARTMENT OF VETERANS AFFAIRS, AC-
COMPANIED BY TOM LASTOWKA, DIRECTOR, PHILADELPHIA
REGIONAL OFFICE AND INSURANCE CENTER, AND PAUL
KOONS, ASSISTANT DIRECTOR FOR INSURANCE

Mr. VoGEL. Thank you, Mr. Chairman. It is a pleasure to be with
you today to discuss our life insurance progrsims. I will submit the



regular statement for the record and ask that I may be permitted
to summarize my remarks. We talk about the size and the scope
of the VA insurance programs. Those eight programs rank VA as
the third largest life insurer in the United States.

Financially, four of the six programs administered by VA have
sufficient reserves invested in U.S. treasury securities to insure
that all future claims and other program obligations will be met
without the need for appropriated funds. These are the U.S. Gov-
ernment Life Insurance, National Service Life Insurance, Veterans
Special Life Insurance, and Veterans Reopened Insurance.

The average yield on the trust funds held in these programs still
reflects the relatively high rates of interest from investments made
in the early and mid-1980s. For example, the average rate of re-
turn on the NSLI portfolio as of June of this year was 9.2 percent.
The interest income from these funds has enabled us to pay fairly
substantial dividends to policyholders and to increase some of the
other benefits that the programs provide to policyholders and their
beneficiaries. If, however, the current trend in interest rates con-
tinues, the rate of return will decline as the older investments are
replaced by lower-yielding new investments. This will affect divi-
dends and interest credits.

On the positive side, however, the decline in interest rates has
affected the rate that we charge policyholders who borrow from
their insurance policies. The current 7 percent variable loan inter-
est rate will drop to 5 percent on October 1.

The Service-Disabled Veterans Insurance and Veterans Mortgage
Life Insurance are the two administered programs that, by design,
are not self-supporting. Because these programs insure disabled
veterans, who have comparatively higher mortality rates, at the
same premium rates as nondisabled, healthy individuals, the pre-
mium income is not sufficient to cover the costs of the claims that
are incurred. Consequently, annual subsidies are required. In fiscal
1992, over $23 million in appropriated funds were required to sup-
port those two programs.

The two supervised programs are Servicemen's Group Life Insur-
ance and Veterans Group Life Insurance. The SGLI program cur-
rently provides full-time insurance protection for approximately
three million members of the uniformed services, ready reserves,
and retired reserves. The total amount of coverage is $458 billion.

The Servicemen's Group Life Insurance program has been finan-
cially self-supporting since 1974, when the last Vietnam War-relat-
ed extra hazard pajnments were made. Due to the high interest
earnings in the early and mid-1980s, and the continued improve-
ments in the mortality experience of the members of the service,
the program had accumulated a surplus so that we were able to
provide a premium at a below-cost rate of 8 cents per thousand per
month.

As a result of drawing down that reserve, we will be bringing
that rate up to 9 cents per thousand per month as of July 1994.
That will result in an increase in the monthly premium of about
$2 for an insured who has the full $200,000 in coverage, the maxi-
mum available.

The second program we supervise is VGLI, Veterans Group Life
Insurance, which currently provides $22 billion in insurance cov-



erage to over 334,000 people who have separated from miUtary
service. The cost is higher because the death rate is higher by 30
percent over the civihan death rate and over 350 percent higher
than the death rate for active duty personnel. Also, the program in-
curs significantly higher administrative expenses since individual
records must be maintained for each account, including premium
collection and policy service actions.

Although originally limited to a single five-year term period,
Public Law 102-568 allows VGLI to be renewed for an indefinite
number of five-year term periods. Given this indefinitely renewable
feature, we have had to extend the premium rates to accommodate
older insureds and make other small adjustments. The new rates
will take effect on the insured's next renewal date.

I will turn now to some of the enhancements and improvements
in the delivery of insurance benefits and services implemented
since the last oversight hearings, many of which were made pos-
sible by legislation strongly supported by this subcommittee.

The most recent changes in the insurance benefit structure went
into effect last December 1 as a result of Public Law 102-568, the
Veterans Benefits Act of 1992. The four programs affected were
SGLI, VGLI, Service-Disabled Veterans Insurance, and Veterans
Mortgage Life Insurance.

The biggest change was the increase from $100,000 to $200,000
in maximum coverage. We have some concerns about the positive
enrollment features of that program which provides that unless
veterans apply for the coverage, they are not covered.

Other coverage increases were provided on a negative enrollment
basis where you have to opt out. We have already encountered sev-
eral cases in which beneficiaries have claimed that an application
was "in the works," that a member was never advised of the addi-
tional insurance coverage option or wasn't given the opportunity to
apply. We will continue to review that situation to determine
whether a change in the enrollment requirements may be
warranted.

Going back to some earlier legislation, as a result of Public Law
100-687 we have been paying interest since 1991 to beneficiaries
of the NSLI program, the one that Mr. Bilirakis still carries, as he
indicated to us. The USGLI program. Veterans Special Life Insur-
ance, and Veterans Reopened Insurance. Interest is paid on the
amount payable to the beneficiary from the date of death of the in-
sured to the date payment is made by the Treasury.

Mr. Chairman, I notice that my time has expired. We are looking
forward on the administrative front to a number of program en-
hancements which were covered in the full statement and also to
the construction of a replacement facility to house the regional of-
fice and insurance center. The new building will also house a re-
gional office for the national cemetery system, the Office of the Dis-
trict Counsel for the eastern part of Pennsylvania, and one of our
benefits delivery centers.

Mr. Chairman, that concludes my summary statement, Mr,
Lastowka, Mr. Koons, and I would be pleased to respond to any
concerns or answer any questions that you or other members of the
committee may have.

[The prepared statement of Mr. Vogel appears on p. 25.]



Mr. Slattery. Mr. Vogel, thank you very much.

In your written statement, you express some concerns about the
affirmative election requirement that was included in last year's in-
crease in the maximum coverage under the SGLI program. Explain
your concerns a little bit more in detail, would you.

Mr. VOGEL. Mr. Chairman, every previous increase in SGLI cov-
erage, until the maximum was raised from $100,000 to $200,000,
was automatic. The only way a member could not have that cov-
erage would be to decline the coverage. In this case, they had to
affirmatively make an application for the additional coverage above
$100,000. Fifty-four percent of the members did elect the increased
coverage.

Mr. Slattery. Fifty-four percent, you say?

Mr. Vogel. Fifty-four percent are covered for the maximum
amount, and there are other gradations in $10,000 increments, too.
It doesn't have to go from $100,000 to $200,000, it could be 150,000
or some other amount. Some members didn't have the opportunity
to apply. We have had some difficult cases involving deaths of
members who weren't covered, but would have been automatically
covered under the old, negative enrollment approach. December 1,
1992, we have had several members who didn't apply and then lost
their hves; their beneficiaries were covered only for the base
amount of $100,000, but not the additional that they would have
been covered for if it would have been automatic. Positive enroll-
ment also places an administrative burden on the military services
£ind their members to do the paperwork.

Mr. Slattery. What is the status of that right now? Does it ap-
pear that the enrollment number is increasing or is it stagnant
there at approximately 50 some percent of those eligible electing to
obtain the additional coverage? What is the indication? Has it lev-
eled off or is it increasing?

Mr. VoGEL. It is increasing slightly. I think we have seen the
first surge of interest. As the word gets out better and the family
members become aware of the increased coverage, we expect to see
some additional applications for the higher amount.

Mr. Slattery. What kind of problem would it be, John, if we
changed this so it would require the service personnel to elect not
to get the additional coverage? I mean, obviously that would prob-
ably significantly increase the number of people participating, don't
you think?

Mr. VoGEL. I think we would have an increase in the amount
participating, sir. The increase of $2 per month, for the difference
between $100,000 and $200,000 in coverage probably wouldn't
cause very many to say that is too much money, and I am going
to get out of the program or not take it.

Mr. Slattery. Is it $2 a month for that additional $100,000 or
is it $8 a month?

Mr. Vogel. I am sorry, sir, $8.

Mr. Slattery. Would you recommend us changing that to re-
quire an affirmative act on the part of the service personnel not to
get it as opposed to

Mr. Vogel. We would be very pleased to work with you on a way
to draft the legislation to allow a negative enrollment to provide



the additional coverage for the insureds and their beneficiaries in
the event of death.

Mr. Slattery. Would that be administratively easier for you to
deal with than the positive arremgement that we have, affirmative
arrangement that we have now?

Mr. VOGEL. It would be much easier for the government.

Mr. Slattery. Pardon me?

Mr. VoGEL. It would, in fact, be easier administratively.

Mr. Slattery. It would be?

Mr. VoGEL. Yes, sir.

Mr. Lastowka. Yes, it would, it would be much easier, sir.

Mr. Slattery. Would the military view it as easier also?

Mr. Lastowka. I believe they would, sir. I can't speak for the
military, but I believe they would. That is the way it has been in
the past.

Mr. Slattery. I note that the Vice President's reinventing gov-
ernment package contains a proposal that was also included in the
President's budget submission which would provide for the pay-
ment of the administrative cost of the VA insurance programs to
be paid fi*om the surplus funds in the NSLI trust funds. It is my
imderstanding that this proposal is thought by some to be uncon-
stitutional. I am just curious what is the view of your general coun-
sel about the constitutionality of the proposal that the Vice Presi-
dent and the President have made in this area?

Mr. VoGEL. The view of the VA General Counsel is that it is like-
ly that the action may be barred on constitutional grounds. How-
ever, an opinion received by the General Accounting Office equivo-
cates on that, so the proposal has been made. Mr. Lastowka, do you
have an5^hing to add to that?

Mr. Lastowka. Yes, I would say that over the course of the years
there have been differing opinions. Even in the strongest opinion
of the VA General Counsel, they have said that ultimately it prob-
ably would be a question judged by the courts, and that it is a very
close C2dl as to whether it is constitutional or not.

Mr. Slattery. Of course the veterans groups don't like the idea
at all, right?

Mr. Lastowka. I have seen different opinions expressed by dif-
ferent service organizations on that same question, sir.

Mr. Slattery. You indicate that funding of an additional $6.2
million for additional features was requested for the construction
of the new insurance center. In order for us to be better prepared
to argue for support of this request, give us some additional back-
ground on this project and explain why it is necessary for the VA
to be funding this additional cost for a GSA building. Can you give
us more information on that?

Mr. Lastowka. Yes, sir. As Mr. Vogel indicated, the funding for
that building will not only cover the regional office and insurance
center, it will cover the District Counsel and it will cover the Na-
tional Cemetery Office. It will also cover the fiinding for the Bene-
fits Delivery Center. Msmy of the items that we want to introduce
into the building exceed the capacity of the present building, which
was built as an Atwater Kent radio factory.

We want to bring in additional telephone lines, additional elec-
trical lines that would make the ADP secure. Approximately half



of the $6 million has to do with upgrades to electrical service, up-
grades to communication lines to support the Benefits Delivery
Center.

The other major part of that is for a raised floor which we be-
lieve, under the VA's modernization program, will significantly
save the agency money in terms of allowing flexibility in the future.
We believe that that will be a feature of future VA offices; that will
be considered intelligent buildings rather than the standard office
buildings of today.

Mr. Slattery. What will be the total cost of the construction of
the building, do you know?

Mr. Lastowka. Right now GSA has an appropriation, I believe
it is $54 million, sir, and the additional $6 million would bring it
to approximately $60 million. Most of the cost will be borne by
GSA.

Mr. Slattery. How much is the VA going to be charged on that
as far as rent, do you know?

Mr. Lastowka. No, I don't have that figure, sir.

Mr. VOGEL. We will endeavor to provide that. It is essentially
market rate at the time the building is completed plus whatever
sxircharges GSA puts on for the management of the building. We
will try to give you our best estimate about what that is.

[The information follows:]

The new building will be occupied by the Regional Office and Insurance Center,
District Counsel, Inspector General's office, National Cemetery Area Office, and the
GSA Field Office. Also colocated in the building is the Benefits Delivery Center
(BDC) which provides on-line operational support to the Insurance Centers in Phila-
delphia and St. Paul, as well as providing the 58 regional offices with access to in-
surance records. In addition, the BDC provides ADP support to 24 regional offices
on the East Coast, the Veterans Health Administration and the National Cemetery
System.

Concerning the cost of the new building, VA's request for $6 million is to fund
certain items in the new building. These items are primarily in the area of data
processing/telecommunications that are special requirements of VA, and are needed
to support the national insurance programs and the claims processing systems for
the regional offices in the eastern part of the country. They include circuits for com-
puter terminals at workstations, an increase in the capacity of the uninterruptable
power supply system, and dual telecommunications demarcation points for split tele-
communications routing within the building, which will allow for continuous service
to customers, even during emergency situations.

GSA has not vet determined the actual SLUG (Standard Level User Charges) rate
for the new building. However, they have advised us that they expect it will be ap-
proximately $23 per square foot for the office space.

Mr. Slattery. One last question. We received numerous calls
and letters fi*om Members' offices on the newest wrinkle in the in-
surance dividends hoax that we deal with that has been, as you
know, circulated for years. I am just curious, can you tell us how


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Online LibraryPension United States. Congress. House. Committee on VeterOperation of VA life insurance programs : hearing before the Subcommittee on Compensation, Pension, and Insurance of the Committee on Veterans' Affairs, House of Representatives, One Hundred Third Congress, first session, September 23, 1993 → online text (page 1 of 9)