CHICAGO (Reuters) - Illinois Governor Pat Quinn on Thursday proposed a plan to reduce Medicaid spending, warning the healthcare program for the poor is on the brink of collapse.
The Democratic governor's $2.7 billion plan calls for saving $1.35 billion by reducing eligibility and coverage, eliminating programs, and other efficiencies, dropping rates paid to providers to save another $675 million, and increasing the state's per pack cigarette tax by $1 to raise $335.7 million annually.
Money from the tax hike would in turn boost federal matching funds for Medicaid by a like amount.
"We must act quickly to save the entire Medicaid system from collapse, and protect providers and the millions of Illinois residents that depend upon Medicaid for their healthcare," Quinn said in a statement. "This proposal will fundamentally restructure our Medicaid system, alleviate the pressures on the rest of our budget, and ensure the program is sustainable for years to come."
In his fiscal 2013 budget address in February, Quinn put state lawmakers on notice that they must address Medicaid spending and the state's huge $83 billion unfunded pension liability - both of which have dragged down Illinois' finances and credit ratings - during the current legislative session.
Medicaid covers 2.7 million Illinois residents and half of the state's births, and the unpaid bill backlog for Medicaid service providers is expected to hit $1.9 billion when fiscal 2012 ends on June 30, according to the governor's office.
A government watchdog group has projected the pile of unpaid bills could skyrocket to $21 billion by 2017 if nothing is done to restructure the Medicaid program.
House Republicans took issue with the cigarette tax hike, with their leader Tom Cross calling for reforms and cuts and not "revenue enhancements" to solve the problem.
Quinn is expected to also tackle pension reform soon based on recommendations from a working group of lawmakers and others.
Ahead of the state's upcoming sale of up to $2 billion of general obligation refunding bonds, credit agencies this week affirmed the state's debt ratings but continued to highlight its daunting financial challenges. Those include the pension liability and an ongoing reliance on deferred payment of bills to manage cash flow.
Moody's Investors Service, which downgraded Illinois' GO rating to A2 in January, said the rating's stable outlook encompasses the state's ability in the past to "reach consensus on politically difficult issues." But it noted there is currently a modest likelihood of near-term progress in addressing major credit challenges.
(Reporting by Karen Pierog; Editing by James Dalgleish)