Disability compensation for veterans severely wounded in Iraq and Afghanistan, particularly the youngest, is set too low, creating a lifetime earnings gap with non-disabled peers, according to a draft study on disabled veterans' incomes prepared for the Veterans Disability Benefits Commission.

The same study found that disability compensation probably is set too high for veterans who first begin drawing the disability payments at age 65 or older, having already retired from post-service careers.

This imbalance in disability compensation paid by the Department of Veterans Affairs was a point of contention at a June 8 commission hearing.

Congress created the commission to examine the appropriateness of benefits being paid to veterans and their survivors. The commission hired the think tank CNA to survey more than 20,000 veterans to determine the effectiveness of VA disability payments in replacing earnings capacity lost to service-connected disabilities compared with nondisabled peers.

The typical veteran is awarded disability pay at about age 55. The present value of their diminished lifetime earnings is about $150,000 and over their remaining years they will draw about $145,000 in disability compensation, nearly matching average earning loss.

But the fairness of disability payments unravels when actual earning losses are broken out by the veteran's age when payments start, the severity of disability and whether conditions are physical or mental. Earnings capacity is affected far more dramatically by mental disorders, CNA found.

Other veterans being undercompensated, and by a "substantial margin," said Christensen, are those left 100 percent disabled or unemployable at 45 or younger. McMahon advised commissioners that they might want to consider adjustments to compensation levels, particularly for these younger veterans, given the rising population of wounded returning home from wars in Iraq and Afghanistan.

CNA noted that a 25-year-old veteran who returned from war 100 percent disabled from physical wounds and was rated as unemployable by the VA, began receiving $28,352 a year in disability compensation, using 2005 rates. That amount was more than $11,000 short of the $39,447 needed annually to stay even with nondisabled peers, the study found.

VA paid the same $28,352 to a 65-year-old veteran rated as "IU," or individual unemployable. But if that older veteran became disabled for the first time at 65 based on latent service-connected conditions, after working a full career, VA actually is over-compensating him, the study found. That's because that older veteran, with his working life behind him, would need only $10,223 to close an earnings gap with peers who are nondisabled veterans.

The earnings gap is more pronounced for veterans who suffer mental disorders such as post-traumatic stress, CNA reported.

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