Exploring the Influences of External Factors on the Veteran Disability Compensation Program

The veteran disability compensation program (VADC) has grown considerably in the last two decades, both in terms of the total number of veterans receiving compensation and the average amount of compensation per recipient. Previous research has identified changes in the composition of the veteran population and in the processes and regulations governing benefit receipt as major proximate causes of this growth. These explanations tend to underemphasize the ways in which conditions outside of the system can affect its performance and scope. In this dissertation, I explore three of these external factors.

In the first chapter, I present descriptive evidence on the relationship between conditions in local labor markets and trends in VADC expenditures and participation. These estimates show a modest positive association between labor market conditions and expenditures in regular times, which strengthens in the aftermath of the Great Recession of 2007–2009. Labor market conditions are also positively associated with local changes in the number of veterans with disability ratings of 50 percent or more.

In the second chapter, I examine whether the incomplete implementation of the Patient Protection and Affordable Care Act (ACA), which encouraged adoption of health insurance by uninsured people, affected participation in the VADC program. Using several quasi-experimental methods, I find that veterans residing in states that did not expand their Medicaid program as part of the ACA were 0.5 – 1.5 percentage points more likely to claim a disability rating of 50 percent or more than those residing in states that expanded Medicaid. The results indicate that Medicaid eligibility and take-up of VA health care were key mechanisms driving this effect.

Finally, in the third chapter I explore whether the 2011 expansion of the Work Opportunity Tax Credit (WOTC) increased employment rates for veterans experiencing unemployment and veterans with service-connected disabilities, two groups targeted by the credit. I find no evidence that the tax credit increased employment rates for service-disabled veterans or veterans with six or more months out of work. For veterans living in families receiving benefits from the Supplemental Nutrition Assistance Program (SNAP), the WOTC increased the employment rate by approximately 2.5 percentage points.