VA Life Insurance

The government now spends more than $27 million annually on the administrative costs of three life insurance programs run by the Department of Veterans Affairs. Yet GAO found that these three long-standing insurance programs for U.S. veterans, which pay substantial dividends to policyholders, could comfortably pay their own administrative costs without risk of insolvency or increased premiums and with little impact on policyholder dividends. In GAO's view, because policyholders are not entitled to dividends by law or contract and they would experience only a slight dividend cut, it would be neither illegal nor unfair to have administrative costs paid out of excess program income. Because the law now requires the government to pay administrative costs, GAO supports legislation that would shift program administration costs from the federal government to the program.

GAO found that: (1) VA investments purchased from the three life insurance programs will average about 9-percent interest annually for the next 7 or 8 years; (2) those earnings and a lower-than-average mortality rate for many of the insured have caused the programs' annual income to accumulate above the solvency levels that VA actuarially determined were necessary; (3) VA expects the three life insurance programs to accrue substantial excess income for the foreseeable future; (4) VA has previously reduced the annual excess reserves by paying dividends to policyholders, and paid over $1 billion in dividends to policyholders in 1990; (5) VA used $27 million in appropriations to pay the three programs' administrative costs for 1990; (6) if VA had used the 1990 excess income to fund the programs' administrative costs, it would have returned $1 billion instead of $1.3 billion to policyholders, decreasing the average individual policyholder return by about $10; (7) veterans' groups opposed the use of excess income to pay administrative costs, since they believed that the government agreed to pay the costs and that veterans had a vested right to the excess income; and (8) neither the insurance contracts, VA regulations, nor the relevant statutes expressly guarantee those benefits, and the insurance policies state that the applicable statutes are subject to amendment. GAO believes that it would be neither illegal nor unfair to policyholders for VA to recover the programs' administrative costs from excess income.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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