September 23, 2010
The State of Illinois will receive less federal Medicaid funding than it budgeted for in FY2011—but more than had been feared several months ago.
After months of debate, Congress in August of 2010 passed and President Obama signed a bill extending enhanced Medicaid payments that were contained in the American Recovery and Reinvestment Act of 2009. The enhanced payments, which began in October of 2008, were scheduled to expire on December 31, 2010. Under HR 1586, they will now end six months later, on June 30, 2011.
However, the extended benefits will be provided at a scaled-back rate. Instead of approving roughly $24 billion in federal funds for the extension, as initially proposed, Congress reduced the funding to $16.1 billion.
Like many other states, Illinois made its FY2011 budget plans in the spring of 2010 based on the assumption that the federal assistance would be continued at the full rate. In April of 2010, the National Conference of State Legislatures reported that 30 states, including Illinois, had either proposed or enacted budgets assuming the full extension of enhanced benefits.
After budgeting for the expanded benefits, states became concerned that Congress might not approve an extension because of the high costs associated with the measure. As previously discussed in this blog, states feared that a failure to extend the Medicaid assistance would put further strains on their already tight budgets.
Illinois projected that the six-month extension at the full rate would bring approximately $479 million in additional federal revenues into the State’s General Funds, according to disclosure documents prepared in connection with state bond sales. Because of the scaled-back benefits in the new law, the estimate has been reduced by $125 million to roughly $354 million, according to the Governor’s Office of Management and Budget. Not all federal Medicaid payments to the State go to General Funds. Total Federal Medicaid revenues resulting from the scaled-back extension have been reduced to an estimated $500 million from $750 million.
General Funds support the regular operating and administrative expenses of most state agencies and are the funds over which the State has the most discretion. The State currently forecasts a General Funds operating shortfall of $5.8 billion in FY2011 and an accumulated deficit from previous years of $6.5 billion, for a total year-end deficit of $12.3 billion. The drop in federal Medicaid funds would increase the gap by $125 million.