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State may lose Medicaid cash
Federal funds could fall by $500 million

Wednesday, March 09, 2005
Chicago Tribune
by Judith Graham,Mickey Ciokajlo

Illinois could lose up to $500 million a year in federal funds under Medicaid reforms being discussed in Washington, state officials said Tuesday.

The proposed cuts could be devastating to hospitals that supply medical services to the poor and the uninsured, they predicted. Stroger Hospital, the largest provider of charity medical care in Chicago, would be most vulnerable.

If federal payments are reduced, Cook County or the state would have to provide additional funding or risk jeopardizing already-strained access to care, experts said.

Medicaid is a $338 billion federal-state program for the poor, the disabled and older people in nursing homes. It covers 46 million people nationwide, more than any single health insurance plan. More than 2 million Illinois residents are covered.

This year, the Bush administration is pushing proposals to overhaul the health program and trim $60 billion from its budget over the next 10 years. The administration said it will achieve those savings by closing "loopholes" that states have exploited to maximize federal Medicaid funding. In exchange, states will get more flexibility in running Medicaid, federal officials have promised.

Governors are highly skeptical, and heated negotiations over proposed reforms last month in Washington failed to reach a consensus.

Illinois Medicaid director Anne Marie Murphy objects to the term "loopholes," noting that strategies used in Illinois to set payments were approved by federal authorities in the early 1990s and "many times since."

Among them is a financing arrangement known as an "intergovernmental transfer," which allows Illinois to collect money from Cook County, combine it with state funds, then request an equal amount of federal funding. In Illinois, the cost of Medicaid is split 50-50 between the state and the federal government.

The federal money received by Cook County under this system has mushroomed over the years to more than $229 million in 2005, allowing the county to expand its health system while reducing its reliance on property taxes.

But the administration wants to crack down on intergovernmental transfers. It says many states have used them to reduce expenditures and shift more costs to the federal budget.

The administration also wants to change the way Medicaid reimburses publicly-owned medical facilities such as Stroger Hospital.

In the past, the state paid Medicaid bills at these hospitals at an inflated rate, which drove up bills for the federal portion of Medicaid as well, giving the hospitals an extra financial cushion with which to pay for indigent care. In 2000, Congress passed legislation limiting how high these Medicaid payments could go and set a schedule for scaling them back.

Under the new administration proposal, that process would end next year, limiting payments to the actual cost of delivering care.

Murphy said this change and the crackdown on intergovernmental transfers would result in a loss of up to $247 million a year in federal Medicaid payments for the state.

Murphy said Illinois also could lose an additional $40 million a year if the administration limits the amount it pays for administrative expenses associated with running Medicaid, as proposed.

With such large amounts at stake, it would be natural for state officials to complain. But Barry Maram, director of the Illinois Department of Public Aid, insisted that the state considered its relationship with the federal government a "partnership" that presented numerous "opportunities as well as challenges."

The third area where Illinois risks losing federal Medicaid funds may explain why Maram seemed to take pains to avoid being critical.

It has to do with a new hospital assessment approved by officials in Washington in December.

Under this deal, Illinois hospitals have agreed to pay the state tax levies of $560 million, which the state will then use to get $430 million in extra federal Medicaid funds. In return for paying the tax, hospitals will get higher payments for treating Medicaid patients.

Illinois' agreement with federal Medicaid officials is for one year only, and it has to be renewed for 2006. Illinois has a lot to gain by making sure that happens.

Still, under the administration's Medicaid reform proposals, the amount could be cut in half--to $215 million--even if another deal is signed.

That would bring the total in lost funds to about $500 million.

John Gibson, a spokesman for County Board President John Stroger, said Stroger is aware of President Bush's proposal and is working with leaders to maintain funding for the county.

"President Stroger has been in constant communication with congressional representatives from both houses explaining the needs of the indigent relative to health care," Gibson said.



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