May 26, 2011
Surprising as it may seem, not all budget cuts reduce spending. A case in point is the FY2012 Medicaid budget passed by the Illinois House on May 13, 2011.
House Bill 3717 includes $6.9 billion of General Funds appropriations for the State of Illinois’ Medical Assistance Program.[1] As indicated in the chart below, the House budget is $537.3 million below Governor Pat Quinn’s proposed FY2012 General Funds Medicaid appropriation. It is also $586.2 below the appropriation passed by the Senate on May 13, 2011 in Senate Bill 2454.
Although the House General Funds Medicaid budget for FY2012 is substantially below the Senate budget and the Governor’s proposed budget, it may not reduce spending, according to a statement by Julie Hamos, the Director of the Illinois Department of Healthcare and Family Services (HFS). Spending cannot be reduced unless rate or program cuts are authorized by the General Assembly through legislation or rules, Director Hamos stated. Without rate or program cuts, HFS must continue to provide the same services as in FY2011. The reduced appropriation for FY2012 will merely result in a longer payment cycle, meaning that state vendors will have to wait longer for their bills to be paid.
Reduced Medicaid appropriations do not necessarily reduce expenditures because of the nature of the Medicaid program and provisions of Illinois law regarding Medicaid payments.[2] Medicaid is a joint federal-state program that funds healthcare for certain categories of low-income people. It is an entitlement program, under which each individual who meets the eligibility criteria is entitled to the benefits. Certain coverage is mandated by the federal government and other coverage is provided at the option of the states. Thus, no spending cuts occur unless a state government reduces program rates, eligibility or benefits.
In Illinois Medicaid claims may be paid out of future years’ appropriations under a provision of Section 25 of the State Finance Act.[3] This provision, known as the Section 25 loophole, has repeatedly been used to budget an insufficient amount of Medicaid appropriations to cover costs for a given fiscal year, knowing that the bills will be paid from the next year‘s appropriations. If appropriations in FY2012 are insufficient to cover required expenditures, bills would pile up and get paid from a subsequent year’s appropriations.
According to Director Hamos’ statement, enactment of the House Medicaid budget would mean that the payment cycle would grow to 100 days for many vendors and bills on hand at the end of FY2012 would be $1.9 billion. The FY2013 Medicaid appropriation would need to increase by nearly $2.6 billion to keep the payment cycle at 100 days. However, these figures are based on the assumption that the State will borrow before the end of FY2011 to pay down existing Medicaid bills, estimated at $1.6 billion. If the borrowing does not occur, the amount of unpaid bills at the end of FY2012 would increase.
Even the Governor’s proposed FY2012 General Funds Medicaid budget exceeded the $6.8 billion appropriation in FY2011. The increased appropriation was attributed to healthcare inflation, enrollment growth and a reduction in federal reimbursement that shifted more spending to general operating funds. Despite the increased recommended appropriation, the Governor’s proposal incorporated hundreds of millions of dollars in spending cuts, including a 6% rate reduction for hospitals, nursing homes and prescription drugs that was expected to save $552.2 million.
The Illinois Hospital Association has expressed strong opposition to Medicaid rate cuts, stating that they would force many hospitals to reduce services or lay off staff. Hospitals previously agreed to a $100 million reduction in hospital outlier rates, the rates paid to hospitals for exceptionally costly Medicaid inpatient stays.