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Illinois Issues
Archive2001-Present: Scroll Down or Use Search1975-2001: Click Here

State of the State: Medicaid is eating up a greater share of the states’ budgets

Aaron Chambers
WUIS/Illinois Issues

Medicaid expenses are booming. Illinois lawmakers know that. Now they know other states are dealing with the same problem.

At the National Conference of States Legislatures’ annual meeting last month in San Antonio, legislators from all 50 states learned they’re in the same boat. Across the board, Medicaid is eating up a greater share of the states’ budgets. And the end is nowhere in sight.

“For state policy-makers, the challenge is how we’re going to make it work,” says Ray Hanley, director of the division of medical services at the Arkansas Department of Human Services. “We’re challenged to sometimes take the same budget and find ways to cover more people.”

Illinois officials have been looking for ways to do just that. Last December, Gov. George Ryan imposed $47 million in cuts on pharmacies that serve Medicaid clients, an effort to close a hole in the budget devoted to providing health care for the poor. Ryan and the legislative leaders agreed to restore $22 million in cuts as part of the $53 billion budget accord they negotiated last spring. 

They employed some clever accounting to fulfill that agreement. Budgeteers closed a $270 million shortfall projected in the 2002 budget with plans to boost claims for federal reimbursements and delay payments to health care vendors to about 30 days. The administration also intends to encourage broader use of cheaper generic drugs.

Nearly 20 states reported to the National Conference of State Legislatures that Medicaid spending exceeded budget levels midway through the last fiscal year.

Illinois has company when it comes to the problem. According to the conference’s latest fiscal report, nearly half of the 40 states that reported Medicaid data complained Medicaid spending exceeded budget levels midway through fiscal year 2001. By the end of that year, Medicaid spending grew by 14 percent over fiscal year 2000 in those 40 states. Originally, it had been budgeted to grow by 6.4 percent.

And the report says Medicaid spending in state budgets is expected to grow 8.7 percent, capturing the largest percentage of new spending, in fiscal year 2002. That’s two to three times higher than projections in other major categories: K-12 education (3.7 percent), higher education (3.6 percent) and corrections (3 percent).

There are several reasons for the increased costs of providing health care for the poor. As is the case for Illinois, other states are paying the price of recruiting more people to Medicaid. Plus, the states are dealing with expansion of eligibility, growth of the disabled population on Medicaid, escalating costs of prescription drugs, increased use of those drugs and overall health care inflation.

“It’s the cost of services and changes in the patterns of utilization [of those services] that are largely responsible for the rising cost of Medicaid,” says Cindy Mann, senior fellow at the Kaiser Commission of Medicaid and the Uninsured, a policy institute. “It is largely, though not exclusively, people with the most serious medical needs — the elderly, and particularly the blind and disabled — who will be responsible for most of the rise in cost over the next five years.”

Mann, a panelist at the conference’s seminar on Medicaid, says some states have frozen provider rates in an effort to keep Medicaid costs in check. She says others have reduced or restricted pharmacy costs, or increased state funding for the program.

And that last solution underlines the larger problem. In general, state budgets aren’t as strong as they have been. According to the conference’s fiscal report, an annual look at state budget activity, states’ expenditures grew 9.1 percent in fiscal year 2001, while revenues grew only 4.5 percent. The analysis included 46 budgets; three had not been passed and one had been vetoed at the time the analysis was compiled in late July. 

To make up the shortfall in fiscal year 2001, the report says 17 states tapped rainy day funds, tobacco settlement funds or other reserves, cut budgets, canceled or delayed capital projects, or increased state debt obligations.

“It’s really a mixed picture,” says Corina Eckl, director of the conference’s fiscal affairs program. “It seems to be getting gloomier for most states. The information that we’ve collected has some element of being a little bit overly optimistic at this point.”

States' budgets aren't as strong as they have been. According to the conference, states' expenditures grew 9.1 percent in fiscal year 2001, while revenues grew only 4.5 percent.

The states’ aggregate balances — general fund ending balances plus rainy day balances — fell from $43.7 billion in fiscal year 2000 to $34.1 billion in fiscal year 2001, according to the report. Increasingly, rainy day funds are accounting for the bulk of total states’ end-of-year balances.

Illinois’ revenues, meanwhile, grew 3.7 percent from fiscal year 2000 to fiscal year 2001, while expenditures grew 6.1 percent, according to the state comptroller’s office. The state’s aggregate balance dropped $391 million from $1.5 billion to $1.1 billion.

But the news from the states isn’t all bad. The analysis also notes that 22 states reported budget surpluses. They made rainy day deposits, funded capital projects, cut taxes and targeted funding for specific programs.

The nation’s lawmakers had other issues on the agenda during their five-day meeting. 

Privacy. They debated whether public records such as documents filed in divorce proceedings should be made available over the Internet. Some lawmakers and privacy advocates voice concern that such records should not be readily available to anyone online. They’re more comfortable when access to those records is limited to people willing to make the trip to the clerk’s office.“The idea is that somebody sitting at home drinking a six-pack of beer can know an awful lot about you just because they’re interested in looking it up,” Rep. Jeff Hatch-Miller, an Arizona Republican, told a group gathered to discuss the issue. “And do you want that to happen or do you want to maintain the relative obscurity that’s created now by paper records?”

But Rebecca Daugherty, director of the Freedom of Information Service Center and another panelist on that topic, argues information about individuals and their dealings with government is important to the exercise of democracy. She cautions lawmakers to wait until problems arise and urges them to solve such problems by punishing the use of the information, not restraining access to it.

“The Internet gives new information; it gives new ways of getting information. There’s a lot of ability to access information [and] a lot more information to access,” she says. “But you still only have 24 hours in the day and you still only have the same attention span. And if you’re a middle-aged, middle-of-the-road person, you’re still as uninteresting as you ever were.”

Election reform. A special conference task force became the latest group to weigh in on election reform. In a report issued at the annual meeting, the task force recommended that each state adopt and disseminate a list of “voter rights and responsibilities.” States also should develop a statewide voter registration database, according to that panel.

“The task force found that there are many good things happening with regard to the administration of elections,” says Sen. Denton Darrington, an Idaho Republican and task force member. “The whole system, all throughout the United States, is certainly not flawed. But like most areas of state government, there is room for improvement.”

The panel, which was formed after last year’s presidential voting debacle, didn’t take a position on voting equipment. It also didn’t take a position on whether there should be a national holiday for voting, or whether felons who have served their sentences should have their voting rights restored. It did, however, recommend that states adopt uniform procedures for recounts. And it recommended that states place renewed emphasis on voter education. Altogether, the task force made 36 recommendations.

According to the conference, legis-latures entertained more than 1,700 election reform-related bills last spring, the session following the Florida recount ordeal. Of those bills, 241 were passed into law and 488 are still pending (10 legislatures are still in session). In Illinois, lawmakers introduced proposals that ranged from distributing voter guides to installing optical scanning devices on voting machines, but they failed to pass any major election reform legislation.

Sales taxes. In light of increased interstate commerce, some lawmakers fear retailers who sell online will grow tired of dealing with a patchwork of state laws and ask Congress to step in.

“It’s as if our income taxes were still written for cash payroll,” says Sen. Steve Rauschenberger, an Illinois Republican and co-chair of a conference committee studying the issue. “We’ve never really taken a lot of effort to modernize sales taxes.”

Congress is debating whether to extend a moratorium on Internet access taxes scheduled to be lifted next month. State legislators hope any continuation will provide them with authority to require remote vendors to collect sales taxes from residents on behalf of states. And they hope Congress won’t go any further with federal mandates. Of course, states are losing a bundle on e-commerce sales taxes that aren’t now collected.

At last, the legislators returned from San Antonio to their home states, constituents and issues. And some Illinoisans were immediately reminded of perhaps the most contentious public policy problem facing the states: lack of capacity at Chicago’s O’Hare International Airport. An American Airlines flight from San Antonio to O’Hare, carrying a few Illinois lawmakers and this reporter, was delayed for clearance to land. And once the plane touched down, it was forced to wait again for an open gate.

“Ladies and gentlemen,” the plane’s captain told passengers, “the congestion doesn’t end … here at O’Hare.”


Illinois Issues, September 2001

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