Illinois hospitals face financial pinch when increase in federal match for Medicaid ends

Federal Medicaid matching funds increased during the pandemic. When the increase ends, hospital closures that are already a national problem could get worse.

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Respiratory therapist Adel Al Joaid removes his protective gear after checking on a COVID-19 patient in January 2022 in the ICU at Rush University Medial Center.

Respiratory therapist Adel Al Joaid removes his protective gear after checking on a COVID-19 patient in January 2022 in the ICU at Rush University Medial Center.

Scott Olson/Getty Images

The Illinois Legislature’s Commission on Government Forecasting and Accountability released its latest monthly fiscal report last week. The report claimed the state is still on track to match the commission’s revised November estimate of a $4.1 billion revenue increase for the current fiscal year.

Revenue had originally been projected to fall from the previous fiscal year. And much of the recently projected increase is believed to be a one-time event and has so far been treated as such.

But revenue projections have become so unreliably squirrelly that groups which rely on state funding are starting to push to get their fair share of what they see as a fast-growing pie.

Take a look at Medicaid, an always complicated and expensive topic that will become much more so in the coming months.

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More than 300,000 Illinoisans risk losing Medicaid coverage at the end of March. There are those who believe that many of those folks are already back on employer health care coverage (or should be). States haven’t been required to conduct redeterminations on Medicaid recipients during the pandemic, and that process will restart soon.

While the state could save money with fewer Medicaid recipients, states are also losing part of their federal Medicaid matching dollars that had been increased during the pandemic. The federal government has increased matching rates during past economic downturns, but it’s never easy to adjust to a decrease, particularly when states have received so much extra for so long.

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Hospitals were hit hard by the pandemic. They lost the ability to offer revenue-producing services during the closures, and the deadly viral waves that followed decimated their workforce, with illness, deaths and burnout.

When that federal Medicaid match falls, hospitals will undoubtedly feel an even greater pinch. Hospital closures are already a national problem, and it could get even worse as the financial pressure increases.

In the past, hospitals were pushed to increase their self-assessments, which injected more money into the Medicaid system and produced more matching federal funds. But hospitals say the state is cash-flush enough to provide more money on its own.

And, like I noted above, there’s very little trust in budget projections. If the projection is flat or less, it’ll be met with widespread skepticism. And many are now eyeing the state’s new $1 billion rainy day fund.

But the problems don’t end there. The state has allowed out-of-state and retired nurses to practice here during the pandemic, and those emergency rules will disappear in May, when the governor’s pandemic executive orders expire.

The Illinois Hospital Association estimates 15,000 of those nurses are working here right now, many of whom are well-paid traveling nurses. While the travel nurses are straining hospital budgets, the workforce situation is such that the sudden loss of that many nurses could shock the entire system and create huge additional costs.

The hospitals have been trying for years to enroll the state in an interstate nursing compact to allow non-Illinois nurses to practice here, but that has always been thwarted by unions.

The governor has already said he wants to greatly expand preschool and child care programs and make college tuition “free for every working-class family.” All of that will cost money, and hospitals are just one group that will be pounding at the door.

Hospitals are the largest employers in most downstate and even some suburban legislative districts. And even if they aren’t the largest employers, their boards are usually populated with the most influential business leaders in the region. It’s very hard to ignore them.

Meanwhile, after forcefully opposing a graduated income tax in 2020, the Civic Committee of the Commercial Club of Chicago is now proposing a 10-year, personal and corporate state income tax “surcharge” of 0.5% and 0.7%, respectively, regardless of income.

None of the $2.9 billion raised by the tax hike could be spent on social services or other budget priorities. Instead, all the money would be sent to the pension funds and the rainy day fund.

The group also says the state should implement mostly unspecified “cost disciplines” to help pay for the plan. It suggests an example of slicing agency spending by 2-3% as a start. It also suggests eliminating the estate tax on assets above $4 million, the current state trigger. They should’ve left that one out because it’s a bad look, to say the least.

Widening the revenue base while narrowing the spending base makes fiscal sense on paper. But the report ignores the decades of all-too-real state underfunding of services for people with dire needs.

Rich Miller also publishes Capitol Fax, a daily political newsletter, and

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