VA Issues New Warning that Default Could Have 'Catastrophic' Effects for Veterans

The Treasury Department pays $25 billion worth of bills for the Department of Veterans Affairs each month -- for veterans benefits, employee salaries, private health care, pharmacy costs and other programs like payments to small and veteran-owned companies that do business with the VA.

A default on the debt on June 1 could put all those payments at risk -- a situation that could be "catastrophic," VA Secretary Denis McDonough said Wednesday, paraphrasing his boss, President Joe Biden.

Acknowledging that such a default would be unprecedented and the immediate, short- and long-term impacts unknown, McDonough said there is potential for any of the department's programs or payments to be "halted or severely delayed."

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"There is no blueprint for what happens to VA if the debt limit is reached," McDonough told reporters at a press conference.

Roughly $12 billion in veterans benefits are expected to be paid out June 1 to 7.1 million veterans or their families, and experts have said those would likely be delayed in the event of a default.

But other payments could be affected as well, according to McDonough. They include: $2.6 billion to health providers who treat 900,000 veterans through the community care program; $1.8 billion to medical and non-health contractors; $835 million for pharmacy costs for 57,000 payments; $3 billion for other costs, including payments to small and veteran-owned businesses; and paychecks to 451,000 VA employees totaling $4.8 billion.

"The president has made clear that a default would be catastrophic for the American people and for our nation's veterans," McDonough said. "In addition to the potential impacts listed above, a default could erase millions of jobs, potentially trigger a recession, devastate retirement accounts, and increase borrowing costs."

The debt ceiling or debt limit is the amount of money the Treasury Department can borrow to pay the nation's bills. The exact timing of when the U.S. would default is unknown, as the amount of cash the Treasury has on hand is dependent on how much tax revenue it receives, but Treasury Secretary Janet Yellen has warned it could happen as soon as June 1.

House Republicans have demanded spending cuts in exchange for lifting the ceiling, while the White House has argued that negotiations on cuts should come after the ceiling is raised to ease economic turmoil and preserve the country's credit rating.

The two sides have been in talks, with House Speaker Rep. Kevin McCarthy, R-Calif., saying Wednesday that negotiators were heading to the White House to continue the discussions. He added, however, that both sides are "still far apart," according to The Associated Press.

"I'm hoping we can make progress," McCarthy said.

McDonough has been at odds with Republican lawmakers since the VA issued a press release in April discussing the potential impact of a GOP budget proposal to reduce overall government funding by 22%.

McDonough has maintained that such cuts would reduce programs for veterans, including health care services and benefits.

Republicans say they never had any intention to cut VA funding and accused the VA of politicizing budget discussions, noting that the Republican-led House is considering appropriations legislation that would cover the president's request for the VA for fiscal 2024, roughly $320 billion.

McDonough said Wednesday that the debt ceiling discussion is a completely separate debate.

"We were asked, and we continue to be asked, about what the impact of those cuts would look like, and that's what we communicated. ... Again, that is a different thing than the default," McDonough said.

The Bipartisan Policy Center has estimated payments could be missed, including veterans benefits, if the nation defaults, based on analysis of past Treasury reports on its daily transactions.

Experts see two possible scenarios for how the Treasury could try to pay U.S. bills after hitting the debt ceiling. In one, the Treasury could choose to prioritize making certain payments before others as cash comes in. In that case, how long veterans benefits and military pay is delayed would depend on where they fall in line for priorities. Yellen has downplayed the possibility of prioritizing payments, doubting that it is technically feasible.

In another scenario, the Treasury could wait until it has enough cash in hand to make a full day's worth of payments in the order in which they came due. Then, if a default happened June 1, veterans benefits due that day might see only a short delay, but delays for later veterans benefits and other payments would grow the longer the impasse lasts.

Roughly $12 billion in military and civilian retirement pay expected to be disbursed June 1, along with $4 billion in military pay scheduled for June 15, could be disrupted by a default as well, according to the Bipartisan Policy Center.

-- Military.com reporter Rebecca Kheel contributed to this report.

-- Patricia Kime can be reached at Patricia.Kime@Military.com. Follow her on Twitter @patriciakime.

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