Can Illinois Dig Its Way Out Of The Medicaid Budget Hole?

All states have faced problems funding their Medicaid programs during the recession. The end of the temporary increase in federal match hasn’t helped. But, as Tracy Pfeiffer discussed a few months ago, Illinois has perhaps the biggest gap between obligations and resources because of the mess it already had created.

In February, Governor Pat Quinn told a bipartisan committee to find $2.7 billion to cut from the Medicaid budget. This move worked about as well with the state legislature as it did with the U.S. Congressional supercommittee last year. So now Governor Quinn will make the cuts on his own. The Illinois Medicaid agency, the Department of Health and Family Services (HFS) projects that at the end of state fiscal year (SFY) 2012, it will have $1.7 billion in unpaid bills at least 120 days old; this results in a $2.7 billion structural deficit. The state’s total Medicaid obligation is estimated at $11.5 billion. Without reductions, the agency estimates a $4.7billion deficit by the end of SFY 2013.

The deficit has been a long time building. The agency says that the state has deferred payment of Medicaid bills from one year to the next for the last 20 years due to inadequate appropriations. Last May, the state underfunded Medicaid by $2 billion, according to the agency. Illinois has a long history of deferred payment of state obligations, notably in the funding of state pension obligations.

According to the Kaiser Family Foundation, during state fiscal year 2011 the state exercised most of the available options for cost containment, including rate reductions and tightening prior authorization requirements for prescription drugs. In SFY 2012, the state also increased copayment requirements and increased its eligibility verification efforts. However, the state did not cut benefits or lower eligibility limits.

The governor’s proposal would cut $1.382 billion by:

  • reducing the income limit for parents from 185 percent of federal poverty level (FPL) to 133 percent;
  • terminating an optional prescription drug assistance program for seniors;
  • eliminating the state’s general assistance benefits for childless, nondisabled adults, which receives no federal match;
  • scrutinizing eligibility of current beneficiaries more closely;
  • eliminating some optional  benefits for adults, such as eyeglasses, nonemergency dental care, and group psychotherapy for nursing home residents;
  • limiting prescription drug benefits to five prescriptions per month without prior authorization;
  • adding or strengthening prior authorization and other utilization controls for many other services;
  • accelerating the transition to managed care for many beneficiaries;
  • eliminating add-on payments and reducing rates for may services; and
  • not implementing the expanded hospice benefit for children CMS had previously approved.

The Patient Protection and Affordable Care Act ( PPACA) (P.L. 111-148) maintenance of effort requirements limit the state’s options. The state cannot make it harder to qualify for Medicaid or cut most income limits below those in effect on March 23, 2010.That’s why the state rejected the state’s proposal to require applicants to verify residence last summer, as discussed in a previous post.

If the Supreme Court strikes down the individual mandate, Illinois may have more choices. If the individual mandate is not severable from the rest of  the law, the PPACA maintenance of effort requirements would be eliminated.  However, if the mandate is severable, then either the Supreme Court or a lower court will have to consider whether the maintenance of effort requirement remains enforceable. How many states also are eagerly awaiting the ruling for just that reason?