VA updates FY 2025 health care budget shortfall to $6.6B, nearly half its previous estimate
The Department of Veterans Affairs is cutting its request for additional funding by almost half after officials told lawmakers last week that a shortfall in its health care budget wasn’t as severe as earlier estimates showed.
The VA is now asking Congress for a $ 6.6 billion supplement to its fiscal 2025 budget to keep providing more health care to more veterans than ever before.
Under Secretary for Health Shereef Elnahal said in an interview Tuesday that the PACT Act, which expands eligibility for VA health care and benefits to veterans exposed to toxic substances during their military service, has “significantly increased demand in our system.”
“We’re breaking records on care delivery, and we’ve seen an increase in costs because of all that. But at no point do we regret all of the thousands of outreach events we’ve done to bring more vets into the system. That was really the entire point of the PACT Act as a bipartisan law. And so what we’re doing is essentially trying to match the resources to that increased demand and the records we’re breaking on care delivery,” Elnahal said.
More than 800,000 new veterans have enrolled in VA health since the PACT Act was signed into law in 2022. Nearly 900,000 veterans saw an upgrade in priority group since the PACT Act was signed, which makes them eligible for a more generous health care coverage package, with lower or no co-pays.
The Veterans Health Administration provided 127.5 million health care appointments in fiscal 2024 — a more than 6% increase compared to the previous year.
Elnahal said VHA’s budget shortfall is less severe than previous estimates because the agency saw lower growth in spending on non-VA community care — while offering “maximum VA options to every veteran who was coming in for care.”
“We were still reliably offering those community care options when veterans were eligible,” Elnahal said. “But what changed is that, because we have more robust referral coordination because we’ve increased telehealth offerings, interfacility consults, and many other types of care alongside the community care option, veterans got a bunch of VA options for their next step in their care.”
VHA saw a 13.8% growth in community care costs in fiscal 2024, but the agency expected to see 15% growth for the year.
“It’s still substantial growth. But we were able to hold community care growth to a lower level than we thought we would, as of July,” Elnahal said.
Elnahal said VHA’s earlier budget shortfall predictions also overestimated its average cost per full-time employee by about $ 3,000.
Part of the reason for this overestimate, he added, is that VHA saw about a 40% reduction in the use of payment incentives between fiscal 2023 and 2024. Those include critical skills incentives authorized under the PACT Act and recruitment, retention and relocation incentives.
“Our leaders in the field were making responsible decisions on the use of things like critical skills incentives, recruitment and retention incentives and additive elements to competitive pay,” Elnahal said. “We used those authorities much less in FY 2024, while still being able to handle the workforce in the way that we did to break records in care delivery. And so because we used fewer of those payment incentives, and because we needed less overtime than we thought because we had staffed up so robustly the previous year, we actually ended up spending less per member of our workforce than we anticipated.”
Elnahal said eligible VA employees in many cases receive these incentives for about a year, but the incentive expires after that.
“Many of those from FY 2023 ended up expiring in FY 2024, and our leaders ended up deciding not to renew many of those — both for just responsible cost reasons, but also because it turned out we had staffed pretty robustly, and we wouldn’t necessarily need another incentive to retain folks, to be able to deliver the care volumes we did last year,” Elnahal said.
“I think that’s a good thing because we did see attrition but not to a level where we couldn’t deliver record-breaking care and a lot of those folks who ended up leaving weren’t necessarily ultimately needed to deliver that record-breaking care,” he added.
VHA also deferred about $ 600 million in medical equipment purchases to stay within budget for fiscal 2024. Elnahal said the agency ensured none of these deferred purchases would compromise patient safety.
“That $ 600 million is not something we can push off for very long and part of that is being incorporated into our new request because you can delay maybe a repair for a year But you really don’t want to extend that too long and by definition, it’s not sustainable,” he said.
As a result of these cost-cutting initiatives, Elnahal said VHA carried $ 2.5 billion more into fiscal 2025 than the agency expected.
“I don’t want to undercut that it was in fact our leaders who made responsible decisions — grew direct care, offered more accessible care to veterans, and we’re ultimately able to control everything from FTE costs, to equipment costs, to a point where we actually ended up staying within the FY 2024 enacted budget, which is good news,” he said.
Elnahal said VHA needs Congress to approve the $ 6.6 billion supplemental funding request for the agency to grow its workforce and stay ahead of rising pharmaceutical costs.
About $ 2 billion of the supplemental request would go toward increased pharmaceutical costs. The agency is also looking to grow its health care workforce by about 5,000 positions.
Elnahal said the majority of the additional hires would be front-line clinicians directly providing health care to veterans.
“The reason we need the money now is because it takes time to hire, it takes time to build capacity. And our projections on care demand are continuing to go up. So we’re not asking for money to bail us out of increased expenses from last year, since we stayed within the enacted budget. We’re simply asking for resources to keep up with all of the new demand and increasing demand we’re seeing for care with the veterans that we continue to enroll in our system,” Elnahal said.
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