There are more issues than one to consider: the VA began this process. NOT the FAA.
The FAA began looking at the VA records for two purposes: one is aa failure to report. Another is conditions which do not meet the medical standard.
Failure to report is a no-go; there's nothing to argue. It's a regulatory violation and may very well result in revocation of the medical certificate falsification. It's a serious issue.
If one reports a condition, reporting does not make the condition acceptable. Taken to the extreme, if one were to report that one's brain had been removed, making that report does not make one medically fit. It simply means that one complied with the requirement to report. Reporting a condition that does not meet medical certification standards does not grant one a medical certificate.
Further, reporting that one has received disability benefits means that A) one has complied with the requirement to report receiving disability benefits; B) one may have a medical condition which meets medical standards ,and C) one may have a medical condition which requires further documentation to determine that one meets medical standards. This, in turn, leaves two possibilities: one meets the medical standard, or one does not.
One does NOT have a right to a medical certificate. Like a pilot certificate, issuance (and retention) is a privilege based on meeting the standards, and upon a determination by the agency charged by an Act of Congress to both make that determination, and to issue the certificate. Reporting a disability benefit is not a free pass to medical certification. It's doing one's legal duty. The FAA does have a right to determine fitness, and a responsibility to do so.
The FAA does NOT base it's decisions, or it's request for additional information, testing, data, etc, upon a military disability rating. The FAA bases it's decisions based on it's own criteria. Providing medical information to the FAA does not grant a medical certificate. If one provides medical information, or if it is obtained, and a determination is made that the airman applicant does not meet the standard, that's the FAA's call. The FAA makes this determination based not only on meeting the medical standard, but on the impact that the applicants condition will have on the applicant for the duration of the medical certificate: this IS the standard. It's not just how you are on the day you show up for the exam, but how you are expected to be, or could be reasonably be expected to be, for the duration of the certificate. This includes factors which may be external to the applicant.
A good example is the PTSD standard which is given by worksheet to the aviation medical examiner, which includes a series of questions for both the applicant, and for the examiner. A "no" answer to any of them, including additional criterial spelled out in notes after the questions, the aviation medical examiner must defer. Additionally, the AME may defer as he or she sees appropriate, and must consider not only the PTSD, but also the triggers which may impact that in the cockpit or going forward.
If one has been suicidal at some point, showing up for the medical exam does not mean one is granted the medical certification simply because one is not suicidal on the day of the exam. Simply because one does not kill one's self in the doctor's office does not mean that ones mental and emotional health isn't at risk going forward. Reporting that condition does not make one eligible.
Even if one has been issued a medical certificate, the FAA is not prohibited from re-visiting the condition or the applicant. "Previously Reported, No Change" is not a free pass any more than reporting the condition in the first place.
One is not entitled to a medical certificate.