When a service member is unable to continue serving in the military as a result of disabilities, they are either separated from service with a disability severance payment or medically retired. The difference between separation and retirement has life long consequences. If faced with the decision of whether to accept medical separation or fight for a medical retirement, it is imperative that you know what benefits you will receive or forfeit.
A service member will be medically separated when the Physical Evaluation Board (PEB) finds the service member rated less than 30%. This type of separation begins the process of severing Department of Defense (DoD) benefits. A service member separating will receive involuntary separation pay. That is calculated based on the following formula: (years of service) x (base pay x 2). Example: service member served 10 years, with a monthly base pay of $4,000. His or her severance payment would be $80,000. That sounds like a lot of money, but it is important to note that disability severance is often only a “loan” because most service members will have to pay it back. Generally, unless the disability was incurred in a combat zone, during performance of duty in combat-related operations, or for disabilities not compensated for by the Veterans Administration (VA), that severance payment will be recouped via monthly VA compensation payments. Besides compensation, Tricare (healthcare) terminates six months after separating from the military. Note, there is also a minimal severance payment calculation when a service member has been on active duty for a short duration. Years of service will be calculated as three years at a minimum, or six years if the disability was incurred in a combat zone or during performance of duty in combat-related operations.
A service member will be medically retired when the PEB finds the service member rated 30% or higher. This type of retirement, known as a Chapter 61 retirement, entitles the service member and his or her family to all benefits of a traditional military retiree. Examples include Tricare (healthcare) for the entire family and future family members, monthly military pension, military base access and privileges, and many more.
How does a medical retirement pension and VA compensation interact?
This is a common question we receive. If medically retired with less than 20 years of service, or otherwise ineligible for another type of non-medical retirement, you receive the higher of your military pension or VA monthly compensation. Example 1: service member is eligible for a monthly military pension of $2,000, and also eligible for monthly VA compensation of $2,500. The retiree will receive $2,500/month from the VA, tax free, but receive $0 from the DoD. However, there is an exception called Combat Related Special Compensation (CRSC). CRSC may restore part or all of the DoD pension, allowing receipt of both DoD and VA payments. I will not be addressing CRSC in this article. Many great articles exist to explain CRSC. Example 2: service member is eligible for a monthly military pension of $2,000, and also eligible for monthly VA compensation of $1,000. The retiree will receive $1,000/month tax free from the VA and $1000/month taxed from the DoD. Overall, the retiree receives compensation most advantageous to him or her. There are some narrow exceptions that modify these calculations, but the majority of medical retirees will not fall into those exceptions.
If my VA compensation will be higher than my DoD pension and I don’t need healthcare or base access, why shouldn’t I accept severance?
Personally, my answer to this is treat a DoD pension as a “back-up” or safety net. If your VA rating is ever reduced below your DoD pension amount, the DoD pension will “kick-in.” Further, if something extreme were to happen such as an overhaul of the VA’s compensation system, your DoD pension is a back-up for life should it ever be needed.
The military’s Disability Evaluation System (DES) is a long and painful process. I know first hand because, like you, I was processed through it a few years ago. After fighting for so long you want to give up and make the pain end. That severance check becomes all the more appealing the longer the process drags on. But, if you can hold strong and ride the process out, a medical retirement is well worth the short-lived pain. There are many considerations that go into electing severance or continuing to fight for a medical retirement, which should always be addressed with competent representation. There is no one correct solution for all.