VA Disability Rates for 2021 and Cost of Living Adjustment (COLA)

VA’s 2021 Cost of Living Adjustment of 1.3% will lead to an increase in the VA disability pay rates Veterans see in 2021.

Overview of the Cost-of-Living-Adjustment (COLA)

 VA adjusts monthly compensation amounts based on the yearly change in the cost of living as determined by the Social Security Administration (SSA).  These periodic changes made to VA compensation rates allow for VA benefit amounts to increase with the rate of inflation.

How to Determine the Cost-of-Living-Adjustment (COLA)

Again, VA COLA rates are based on the COLA rates set forth by the SSA.  The SSA bases COLA rates on the percentage increase in the Consumer Price Index for Urban Wage Earnings and Clerical Workers (CPI-W) from the third quarter (i.e., July, August, and September) of the previous fiscal year to the third quarter of the current fiscal year.
CPI-W Explained
The CPI-W is a statistical measure of the change of the prices of goods and services over time in eight “major expenditure groups,” including: food and beverages; housing; apparel; transportation; medical care; recreation; education and communication; and other goods and services.  The Bureau of Labor Statistics calculates CPI-W on a monthly basis, and the SSA compares the data from the third quarter of the previous fiscal year to the third quarter of the current fiscal year in order to accurately reflect the change in the cost of living in their compensation rates.  VA then uses the COLA rate from the SSA to make adjustments to veterans’ monthly disability compensation amounts.

Cost-of-Living Adjustment (COLA) and VA Disability Pay Rates Over Time

2019 COLA Rate

In 2019, the COLA saw a 2.8 percent increase, which was the largest COLA increase since the 3.6 percent rate increase of 2011.  It was also a significant jump from the 2 percent COLA rate increase of 2018.  The 2019 VA compensation rates went into effect on December 1, 2018 and were reflected in veterans’ benefit checks starting December 31, 2018.

2020 COLA Rate

In 2020, the COLA rate ranged closer to 1.6 percent, representing a decrease from 2019; however, this adjustment still resulted in an increase in benefits for veterans.  The 2020 COLA went into effect on December 1, 2019 and was reflected in veterans’ benefit checks starting on December 31, 2019.

2021 VA Disability Rates Adjustments Explained

In October 2020, the SSA announced that over 70 million Americans who rely on Social Security benefits, VA disability benefits, military retirement, and other government benefits will see a 1.3 percent increase in their monthly compensation.  For veterans receiving VA disability benefits, this increase will take effect in December 2020 and be reflected in benefit checks starting on December 31, 2020.  While many veterans were hoping for a higher increase in 2021, this 1.3 percent increase is still significant given earlier projections of no increase at all.  There are several reasons for the COLA increase in 2021, including the following:

• COVID-19 has created food and product disruptions, which could result in higher prices in the third quarter
• COVID-19 fears and the economic impact may subside by the time the CPI-W measurement period begins in July
• Tariffs and taxes could lift the prices of traded goods, which would be recognized in a higher CPI-W

VA Disability Pay Rates for 2021

 In September 2020, the Senate passed a cost-of-living increase for veterans benefits in 2021, so long as the SSA and COLA increase as well.  Similar to the Veterans’ COLA Act of 2019, this bill directs VA to increase, as of December 1, 2020, the rates of VA disability, additional compensation for dependents, clothing allowance (if applicable), and Dependency and Indemnity Compensation (DIC) for surviving spouses and dependents.

Although Social Security benefits are automatically adjusted as a result of COLA, Congress must pass legislation every year to provide COLA for veterans surviving family members receiving VA disability compensation.

The 2021 VA disability pay rates in 2021 for a Veteran with no dependents is as follows: