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You are getting hung up on the words "earning capacity" and not the previous ones "as far as can be practically determined the average impairment in".
It's not saying someone with a 100% rating can't earn a living…or even a good living. What it is saying is that their injuries have impaired how much their earning capacity could be if they didn't have those injuries, and the compensation scale they have is the best way they've come up with to compensate for it.
I'm focused on that because the distinction is important. For people who have disabilities that aren't service-related, once their income reaches a certain level, the disability payments they receive are reduced accordingly. They aren't paid for being blind, they are being paid for the inability to earn a living. As real-life proof is shown that they can earn a living, the payment from government goes down.
That concept and language of the VA are important for the story in the OP. If veterans are being compensated strictly for the service injury, then the amount they receive should never change. In your example, the guy with the missing leg will always have a missing leg. He gets compensation for that for life.
If they are compensating for the potential for lost income based on the injury, that opens the door for what the plan the OP talked about - reducing payments if treatments are successful. The treatments could increase the potential for income. If changes like that get approved, it could also open the door for potential reductions in payments through means-testing, the way other disabilities are treated.
And you're acting as if I want to reduce payments to veterans or don't understand the distinction between visible or non-visible injuries or PTSD. As the son of a Vietnam veteran, I don't want cuts and I do understand. That's not the point. The distinction on what the payments compensate for could have real meaning for what policies could be enacted. The words matter.