S1235MAY26

TheWeekInCongress.com

Week Ending May 26, 2006

S.1235 A bill to amend title 38, United States Code, to extend the availability of $400,000 in life insurance coverage to service members and veterans, to make a stillborn child an insurable dependent for purposes of the Service members' Group Life Insurance program, to make technical corrections to the Veterans Benefits Improvement Act of 2004, to make permanent a pilot program for direct housing loans for Native American veterans, and to require an annual plan on outreach activities of the Department of Veterans Affairs".

BRIEF

The bill would increase from $250,000 to $400,000 the automatic coverage maximum under the Service members Group Life Insurance and Veterans Group Life Insurance programs.

Spouses or next of kin of service members that did not enroll in the program or agrees to a lower death gratuity would be notified of that decision as would a new spouse if the service member is enrolled or insured at a lower payout. The spouse would also be notified if he or she is not the beneficiary.

Service members could decline to participate in the Traumatic Injury Protection program recently made law in the President’s Emergency Supplemental for the war on terrorism and tsunami aid.

A totally disabled member released from active duty would see an increase from one to two years the time during which they pay no insurance premiums.

A stillborn child of a member can be classified as an insurable dependent.

The VA can make direct housing loans to Native American veterans to purchase, construct, or improve dwellings on trust land.

Sponsor: Senator Larry E. Craig (R-ID)

Vote: Passed Senate as a substitute for HR 3200 by Unanimous Consent September 27, 2005. HR 3200 Passed the House 424 to 0 (RC 420) (July 25, 2005). Senate bill Agreed to in the House May 25, 2006

Cost to the taxpayers: “CBO estimates that implementing this bill would cost $95 million in 2006 and about $200 million over the 2006-2010 period, assuming appropriation of the necessary amounts. In addition, CBO estimates that enacting this legislation would increase direct spending for veterans programs by less than $500,000 in 2006, but decrease such spending by less than $500,000 over the 2006-2010 period and by $2 million over the 2006-2015 period.”

MORE INFORMATION

DISCUSSION

Section 101: Group life insurance

Background

Instituted in 1965, SGLI is a VA-supervised life insurance program that provides group coverage for members on active duty in the uniformed services (Army, Navy, Air Force, Marine Corps, and Coast Guard), members of the Commissioned Corps of the United States Public Health Service and the National Oceanic and Atmospheric Administration, Reserve and National Guard members, Reserve Officer Training Corps members engaged in authorized training, service academy cadets and midshipmen, Ready Reserve and Retired Reserve members, and Individual Ready Reserve members who are subject to involuntary recall to active duty service. VA purchases a group policy on behalf of participating members from a commercial provider. The current provider is, and has been since 1965, The Prudential Insurance Company of America (hereinafter, `Prudential'). Prudential administers the SGLI program through its Office of Servicemembers' Group Life Insurance. VA's fiscal year 2006 budget submission projects that 2,436,000 individuals will be covered under SGLI during fiscal year 2006.

Full coverage under SGLI is provided automatically at the maximum coverage amount when an individual begins covered service. Partial coverage at prorated premium rates is available for Reserve and National Guard members for active and inactive duty training periods. To be covered in an amount less than the maximum, or to decline coverage altogether, a member must make a written election to that effect. Coverage amounts may be reduced in multiples of $10,000. A member may also name, at any time, a beneficiary or beneficiaries of his or her choice. Following commercial insurance practice, decisions about coverage amounts and the naming of beneficiaries are made at the sole discretion of members insured under SGLI.

The Veterans' Insurance Act of 1974, Public Law 93-289, established a new program of post-separation insurance known as VGLI. Like SGLI, VGLI is supervised by VA but administered through Prudential. VGLI provides for the post-service conversion of SGLI to a renewable term policy of insurance. Persons eligible for full-time coverage include former servicemembers who were insured full time under SGLI and who were released from active duty or the Reserves, Ready Reservists who have part-time SGLI coverage and who incur certain disabilities during periods of active or inactive duty training, and members of the Individual Ready Reserve and Inactive National Guard. Like SGLI, VGLI is issued in multiples of $10,000 up to the maximum coverage amount, but in no case can VGLI coverage exceed the amount of SGLI coverage a member had in force at the time of separation from active duty service or the Reserves.

Current law provides for a 120-day period after separation from active duty service or the Reserves for a member to receive premium-free SGLI coverage and elect to convert coverage to VGLI. Members who are totally disabled at the time of their separation from service have up to one year after separation to apply to receive premium-free SGLI coverage during that year and to convert their coverage to VGLI.

Taking advantage of the conversion option is especially critical for totally disabled veterans who, because of their disabilities, may not be insurable at competitive commercial rates after military service. Through a targeted outreach effort to this population, VA has learned that many totally disabled veterans do not convert their coverage to VGLI because they may have neglected post-separation financial planning due to the effects of their disabilities, or because they were simply unaware of the extension option. As Under Secretary for Benefits Daniel L. Cooper stated at the Committee's June 23, 2005, hearing: `Extending the SGLI post-service coverage period to two years would enable some totally disabled veterans who would be unable to obtain commercial life insurance to obtain VGLI. Extending the period would also allow VA to conduct additional outreach to totally disabled veterans and inform them about the opportunity to convert their SGLI to VGLI.'

Maximum SGLI and VGLI coverage amounts are set in law and have increased over the years. Coverage amounts have increased to account for the effects of inflation and to provide members with insurance coverage that reflects a multiple of their earnings that is similar to what is recommended in the insurance industry. The original SGLI coverage amount was $10,000, but has since increased to $400,000. The latest increases for both SGLI and VGLI, from $250,000 of coverage to $400,000, occurred through the enactment of section 1012 of the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Tsunami Relief, 2005 (hereinafter, `Supplemental Appropriations Act'), and took effect on September 1, 2005. However, the increases in coverage amounts are temporary. Pursuant to subsection (i) of section 1012 of the Supplemental Appropriations Act, all amendments made by section 1012 will expire on September 30, 2005, and the law as it existed prior to the enactment of the Supplemental Appropriations Act will be revived. Thus, the new maximum coverage amounts, unless extended by another Act of Congress, will only be in effect for 30 days--from September 1, 2005, to September 30, 2005.

The Supplemental Appropriations Act made other SGLI program changes which will only be in effect for that same 30-day period. Those changes include allowing lesser amounts of SGLI and VGLI coverage to be elected in increments of $50,000 as opposed to $10,000; extending $150,000 in coverage on a premium-free basis, to insured and uninsured members who are deployed to designated combat zones; requiring the written consent of the spouses of married members before an election may be made to decline or reduce SGLI coverage; requiring that written notification be given to the designated beneficiaries or next-of-kin of non-married members who elect to decline or reduce SGLI coverage; and requiring the written notification to spouses of members who elect to name a beneficiary, or beneficiaries, of SGLI insurance proceeds.

The Supplemental Appropriations Act provisions requiring that certain notification of insurance decisions be given to spouses and other beneficiaries, and giving spouses the right to override some of those decisions by withholding written consent, was opposed by advocates in the veterans' community. Concern was expressed regarding any policy of notification at the Committee's June 23, 2005, hearing. As was stated by Rick Jones of AMVETS: `as an adult, the servicemember's decision regarding initial coverage, the amount of coverage and insurance beneficiary or beneficiaries should be the individual's alone, unless the person freely chooses to discuss the decision with family members or others.'

Committee bill

Section 101 would make permanent the $400,000 coverage amounts for SGLI and VGLI, and would make permanent the requirement that lesser amounts of insurance coverage be elected in $50,000 increments. In addition, in an attempt to balance the longstanding rights of members to make unfettered insurance decisions with the rights of spouses to be informed of financial decisions that may impact on a family's future financial stability, section 101 would require the appropriate agency Secretary to make a good faith effort to notify the spouse of members who elect to reduce amounts of insurance coverage or name a beneficiary other than the member's spouse or child. Finally, section 101 would extend from one to two years, after separation from active duty service, the period within which totally disabled members may receive premium-free SGLI coverage and convert coverage to VGLI.

Section 101(d) would address effective-date issues caused by potential enactment dates and would harmonize the section 101 provisions with those of the Supplemental Appropriations Act. First, to promote consistency in statutes affecting SGLI that will ultimately be extended beyond September 30, 2005, the language of section 101(d) stipulates that those elements of the Supplemental Appropriations Act that will not be extended, in whole, beyond the September 30, 2005, termination date would not be treated for any purposes as having gone into effect. The effective date of section 101(a) of the Committee bill would be September 1, 2005, and the effective date of sections 101(b) and (c) would be October 1, 2005. Should the provisions of section 101(a) be enacted after September 1, 2005, and before October 1, 2005, they would amend the law in effect on May 10, 2005, the day before the enactment of the Supplemental Appropriations Act.

Section 102: Treatment of stillborn children as insurable dependents under servicemembers' group life insurance program

Background

Section 4 of the Veterans' Survivor Benefits Improvements Act of 2001, Public Law 107-14, established a program of family insurance coverage under SGLI under which an SGLI-insured member's insurable dependents--defined as the member's spouse and children--could also be insured. A member's spouse may be insured in an amount up to $100,000. Coverage of a member's children is automatic and is in the amount of $10,000 for each child.

A case brought before the United States District Court for the Southern District of Indiana, Warnock v. Office of Servicemembers' Group Life Insurance, No. 1:03-cv-1329-DFH, 2004 U.S. Dist. LEXIS 8533, at 2 (S.D. Ind. April 28, 2004), raised an issue as to whether a member's stillborn child is covered as an insurable dependent under SGLI. The plaintiff, Michael Patrick Warnock, argued that the stillbirth of his child at 38 weeks gestational age should be covered under SGLI. The Court ruled, in dismissing Mr. Warnock's lawsuit for failure to state a claim upon which relief could be granted, that applicable statutes and the SGLI policy do not extend life insurance coverage to stillborn infants. Nevertheless, the Court stated that `Congress could write the statute, or an insurer could write a policy, to cover future stillbirths.'

At the Committee's June 23, 2005, hearing, Under Secretary for Benefits Daniel L. Cooper testified that VA supported enacting legislation covering stillborn children as insurable dependents under SGLI as follows: `Insuring stillborn infants under SGLI would directly benefit those servicemembers and their families who tragically experience a stillbirth, by providing financial assistance at a time of need. This benefit would help defray medical care and burial or cremation costs incurred by a servicemember because of a stillbirth. A funeral for such a child can cost as much as $3,000.'

Committee bill

Section 102 would cover a member's `stillborn child' as an insurable dependent under the SGLI program. The Committee does not expect the term `stillborn child' to cover the deaths of children at any gestational age or under every circumstance. Rather, the Committee would expect VA to issue regulations that would define the term consistent with the definition used for deaths that are to be reported as `fetal deaths' under Section 15 of the Model State Vital Statistics Act drafted by the Centers for Disease Control's National Center for Health Statistics. The Model Act requires fetal deaths involving fetuses weighing 350 grams or more or, if weight is unknown, of 20 or more completed weeks of gestation to be reported to the State Office of Vital Statistics or as otherwise directed by the State Registrar. Furthermore, the Committee does not intend the definition to include induced terminations of pregnancy, except to save the life of the mother.

Section 201: Adjustable rate mortgages

Background

Section 405 of Public Law 108-454 authorized VA, through fiscal year 2008, to guarantee so-called `hybrid' ARM loans, which are loans that carry a fixed rate of interest for an initial period followed by annual interest rate adjustments thereafter. That statute also attempted to put into place interest rate cap protections similar to those in place for the Federal Housing Administration's (hereinafter, `FHA') hybrid ARM loan program. These interest rate caps are common in the commercial lending market and serve to protect borrowers against precipitous increases in interest rates.

For VA hybrid ARM loans with an initial rate of interest fixed for less than five years, the initial and subsequent annual interest rate adjustments are limited to one percentage point. For hybrid ARM loans with an initial rate of interest fixed for five or more years, VA has the authority to set an appropriate interest rate cap for the initial interest rate adjustment (the current industry standard is a two percentage point cap), and annual adjustments thereafter are subject to a one percentage point cap. Finally, VA has the authority to prescribe the maximum number of percentage points above the initial fixed rate of interest that would limit, over the term of a mortgage, interest rate adjustments.

The annual rate cap of one percentage point that applies to hybrid ARM loans with an initial rate of interest fixed for five or more years is overly restrictive and is inconsistent with the terms offered on FHA-insured hybrid ARM loans. According to testimony submitted by the Mortgage Bankers Association at the Committee's hearing on June 23, 2005, VA and FHA loans with similar terms are typically pooled and sold in the secondary mortgage market as mortgage-backed securities. The Government National Mortgage Association guarantees the cash flow to the investors on pools of FHA and VA loans, lowering the risk of these pools to investors and, thus, lowering the cost of financing to mortgage lenders and home buyers. Therefore, in order to lower the cost of financing to veterans who wish to buy homes with a VA hybrid ARM loan, the terms on VA's guarantee of hybrid ARM loans necessarily must conform to the terms of hybrid ARM loans insured by FHA.

Committee bill

Section 201 would give VA the flexibility to prescribe an appropriate annual rate adjustment cap for VA hybrid ARM loans with an initial rate of interest fixed for five or more years.

Section 202: Technical corrections to Veterans Benefits Improvement Act of 2004

Background

A specially adapted housing grant of up to $50,000 is available to certain severely disabled veterans for costs associated with building, buying or remodeling adapted homes or paying indebtedness on homes already acquired. Section 401 of Public Law 108-183, the Veterans Benefits Act of 2003, extended the availability of specially adapted housing grants to servicemembers with severe disabilities who remain on active duty if their injuries occurred, or diseases were contracted, in the line of duty. It was intended that servicemembers receive the specially adapted housing grants in the same manner as veterans who were already authorized to receive such grants.

Due to a technical drafting error, section 401 of the Veterans Benefits Improvement Act of 2004, Public Law 108-454, repealed the authorization for severely disabled members of the Armed Forces to receive specially adapted housing grants from VA while still on active duty.

Committee bill

Section 202 would restore the authorization for certain severely disabled members of the Armed Forces to receive specially adapted housing grants from VA while still on active duty.

Section 203: Permanent authority for housing loans for Native American veterans

Background

Public Law 102-547 established a pilot program through which VA provides direct loans to Native American veterans residing on trust lands. The Native American Veteran Direct Loan Program provides loans for the purchase, construction, or improvement of dwellings on Native American trust lands, and for the refinancing of existing loans. A total of 470 loans have been made through this program since its inception through June 30, 2005. The authorization for the program will terminate on December 31, 2008.

The rate of home ownership for Native Americans is roughly half that of the general U.S. population. Lower Native American home ownership rates exist partially because mortgage lenders generally require as a condition of securing a loan that applicants own the parcel of land on which the home resides. Land ownership for many veterans in Indian Country, Alaska, and Hawaii is not possible because existing homes, or land available for new home construction, are located on trust lands. Most mortgage lenders decline loan applications from Native American veterans residing on trust lands because Federal law prohibits lenders from taking possession of those lands in the event of default. VA's direct loan program provides these veterans with another source of financing to avoid this problem.

Committee bill

Section 203 would permanently authorize the Native American Veteran Direct Loan Program.

Section 301: Annual plan on outreach activities

Background

VA has a statutory mandate to perform outreach activities to certain categories of veterans. For example, section 2022 of title 38, United States Code, requires VA's Mental Health and Readjustment Counseling Service to conduct joint outreach efforts to veterans at risk of homelessness. Sections 7722 and 7727 of title 38, United States Code, require the Veterans Benefits Administration to conduct outreach activities which include sending letters to separating servicemembers, distributing full information about veterans' benefits to veterans and their dependents, and outreach to assist claimants with the preparation and presentation of claims for benefits.

Section 805 of the Veterans Benefits Improvement Act of 2004, Public Law 108-454, requires VA to prepare and submit to Congress a report `setting forth a detailed description of (1) [VA] outreach efforts * * * to inform members of the uniformed services and veterans (and their family members and survivors) of the benefits and services to which they are entitled * * * and (2) the current level of awareness * * * of those benefits and services * * *.' There is currently no statutory mandate for VA to formulate an annual plan to conduct its outreach activities.

Committee bill

Section 301 would require VA to prepare annually (and submit to Congress) a plan for the upcoming year's outreach activities. Such a plan would incorporate the recommendations of the report mandated by Public Law 108-454, and would be prepared after consultations with veterans' service organizations, State and local officials, and other interested groups and advocates.

Section 302: Extension of reporting requirements on equitable relief cases

Background

Section 503 of title 38, United States Code, authorizes the Secretary of Veterans Affairs to provide monetary relief to persons whom the Secretary determines were deprived of VA benefits by reason of administrative error by a Federal government employee. The Secretary may also provide relief which the Secretary determines is equitable to a VA beneficiary who has suffered loss as a consequence of an erroneous decision made by a Federal government employee. The Secretary is required to submit to Congress a report, no later than April 1 of each year, containing a statement as to the disposition of each case recommended to the Secretary for equitable relief during the preceding calendar year. The Secretary is not required to submit a report to Congress after December 31, 2004.

Committee bill

Section 302 would extend the equitable relief reporting requirement through December 31, 2009.

Section 303: Inclusion of additional diseases and conditions in diseases and disabilities presumed to be associated with prisoner of war status

Background

Section 1112(b) of title 38, United States Code, contains two lists of diseases that are presumed to be related to an individual's experience as a prisoner of war. The first presumptive list requires no minimum internment period and includes diseases associated with mental trauma, or acute physical trauma, which could plausibly be caused by even a single day of captivity. That list includes psychosis, any of the anxiety states, dysthymic disorder (or depressive neurosis), organic residuals of frostbite (if the Secretary determines that a veteran was interned in conditions consistent with the occurrence of frostbite), and post-traumatic osteoarthritis. The second list has a 30-day minimum internment requirement. The second list includes avitaminosis, beriberi, chronic dysentery, helminthiasis, malnutrition, pellagra, any other nutritional deficiency, cirrhosis of the liver, peripheral neuropathy, irritable bowel syndrome, and peptic ulcer disease.

VA's Workgroup on Medical Presumptive Conditions in Former POWs that has established procedures, guidelines, and standards to determine whether additional diseases should be added to a presumptive list. On June 28, 2005, VA issued a final rule, see 70 Fed. Reg. 37,040, which added two additional diseases to those presumed related to the prisoner-of-war experience: (1) atherosclerotic heart disease or hypertensive vascular disease (including hypertensive heart disease) and their complications (including myocardial infarction, congestive heart failure, and arrhythmia); (2) stroke and its complications.

Committee bill

Section 303 would codify the two diseases VA established through its final rule published on June 28, 2005, as presumptively related to the prisoner-of-war experience. These diseases would be included under the list requiring a minimum, 30-day internment period.

Section 304: Post traumatic stress disorder claims

Background

On May 19, 2005, the VA Inspector General released a report titled `Review of State Variances in VA Disability Compensation Payments.' The Inspector General's report found that state variances in average levels of compensation are explained, in part, by variances in VA adjudications of PTSD claims. The review found that in 25 percent of the 2,100 PSTD cases reviewed, there were inconsistencies in the methods used by VA to develop and verify evidence of a claimed service-related stressor event that caused the claimed PTSD condition. The Inspector General report recommended that VA expand its national quality assurance program to ensure consistency and accuracy nationwide on PTSD claims development and rating. The Inspector General also identified the need to improve the quality of medical examinations that provide the basis for accurate disability ratings, and to adequately train staff to improve the accuracy and timeliness of claims adjudication.

Committee bill

Section 304 would require VA to develop and implement policy and training initiatives to standardize the assessment of PTSD disability compensation claims.

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