June 7, 2012
State of Illinois officials expect unpaid Medicaid bills to decline to $600 million by the end of the 2013 budget year, but that prediction depends on legislation that has not yet passed the Senate.
As discussed here, unpaid Medicaid bills on hand were projected to reach nearly $1.9 billion by the end of the current fiscal year on June 30, 2012, due largely to significant underfunding of the program. The backlog of bills would have increased to roughly $4.5 billion by the end of FY2013 without action by the State to close a funding gap of approximately $2.7 billion.
In the legislative session that ended on May 31, 2012, the General Assembly passed a supplemental appropriation that increased resources for Medicaid by roughly $300 million in FY2012, based on a projection of higher than expected revenues in the current fiscal year. The transfer of $151 million from general operating funds to the Healthcare Provider Relief Fund will generate $300 million through a cycle of Medicaid spending and federal reimbursement known as churning. As a result, the backlog of unpaid Medicaid bills at the end of FY2012 is now expected to decline to approximately $1.6 billion from $1.9 billion.
The General Assembly also authorized the use of $500 million in general operating funds in FY2013 to pay down the accumulated Medicaid backlog. When matched with federal reimbursements, this will supply $1.0 billion to spend on Medicaid bills and reduce the backlog at the end of FY2013 to $600 million from $1.6 billion.
However, this projected reduction is based on the assumption that the $2.7 billion Medicaid funding gap for FY2013 has been closed. Medicaid is an entitlement program under which certain categories of low-income people who meet eligibility requirements are entitled to specified medical services. To reduce Medicaid spending requires reductions in program eligibility, benefits or reimbursement rates paid to healthcare providers such as hospitals, nursing homes and pharmacies.
The General Assembly addressed $2.4 billion of the $2.7 billion funding gap in FY2013 through a package of program changes, rate reductions and revenue increases described here. The remaining $300 million was addressed in Senate Bill 2971, as amended by the House, which passed the House on May 30, 2012 but has not passed the Senate. SB2971 authorizes a similar transfer of $151 million from general operating funds as in FY2012, generating roughly $300 million to pay Medicaid expenses in FY2013.
If the funding gap is not closed, then Medicaid bills at the end of FY2013 would total more than $600 million. Senate Bill 3397, part of the Medicaid legislation passed by both the House and the Senate, virtually eliminates the State’s ability to defer Medicaid bills under the Section 25 exception to the State Finance Act. The Section 25 exception allows Medicaid costs to be paid from future years’ appropriations and has been used as a budget-balancing device. SB3397 limits Section 25 Medicaid liabilities to $700 million in FY2013 and $100 million thereafter. The bill also extends the lapse period for Medicaid bills to six months from the normal two months. During the lapse period, revenues from the next fiscal year may be used to pay bills from the current fiscal year.