Illinois needs significantly more revenue to cover core expenses. But to bring in more cash, Democrats in Springfield are requesting that Republicans share in the political pain of raising the state's income tax. And before the GOP jumps on board, they want to see Democrats in the General Assembly make an honest effort to cut costs in the state's Medicaid system.

Identifying inefficiencies in Illinois' public health program for the poor is the main task of two newly created bipartisan legislative committees, each of which heard testimony from health care stakeholders at several hearings this past week. If the panels submit recommendations in time, both chambers could take up new legislation during the final days of the veto session in early January, before lame duck lawmakers leave town for good.

It's not particularly surprising that lawmakers nervous about our budget problems would target Medicaid; on the surface, it's one of the state's largest expenditures, costing $14.4 billion to operate in FY 2009. Like everywhere else in America, health care inflation and an increase in the utilization of services are driving up costs, too.

To be sure, several useful (and progressive) reforms were discussed this month. Taking larger steps to move the elderly and developmentally disabled from large institutions to community-based settings was one issue most everyone agreed was prudent to pursue. Long-term care represents a dominant portion of Medicaid's budget; although the elderly and the disabled (both physical and mental) make up only 20 percent of the Medicaid population, their services eat up nearly 70 cents of every Medicaid dollar spent.

Illinois directs most of its funding for these recipients through public and private institutions, placing us a meager 49th in the nation for adults treated at family-scale facilities. Re-balancing this ratio has long been a priority of the disability rights community, which argues that community living is cheaper to administer and more comfortable for those who seek greater autonomy, so long as significant resources (and skilled state employees) follow those recipients into their neighborhoods. State Sen. Heather Steans (D-Chicago), a co-chair of the Senate committee, agrees. Watch her discuss the reform effort, courtesy of Illinois Statehouse News (the relevant portion begins about 50 seconds in)**:

Enhancing the state's information technology capacity should be prioritized, too. Several lawmakers and bureaucrats bemoaned Illinois' record-keeping system, which they characterized as archaic. "Everything is still in paper files," State Rep. Sarah Feigenholtz (D-Chicago) said on Monday. "Computer systems crash. The whole office is shut down." Fortunately, the federal government is currently offering to fund electronic medical record upgrades to the tune of 90 percent. John Bouman, president of the Sergeant Shriver National Center on Poverty Law, advised officials to reinvest some of the savings achieved by these reforms into a capital fund for IT improvements, which would save considerable cash in years to come.

Advocates also announced modest support for an increase in co-payments for non-emergency hospital visits, so long as there is a process in place for hospital administrators to refer patients to facilities nearby that offer primary and/or non-emergency care. Providing an additional incentive for patients to seek out preventive treatments, as opposed to late (and costly) interventions at hospitals, could help hold down spending and protect strapped providers who often eat the cost of treatment if a patient cannot pay at the point of entry.

Several other proposals bandied about, however, deserve heavy scrutiny. Republicans seemed eager to tighten eligibility standards for the program. Currently, the Illinois Department of Healthcare and Family Services (DHFS) reviews eligibility using pay stubs annually. State Rep. Patti Bellock (R-Westmont), who co-chairs the committee in the House, has introduced legislation that would change that requirement to proof of one month’s worth of income, a move DHFS says its contemplating taking internally. But the Shriver Center noted that in other states where extra barriers to entry have been erected, the result is often that more eligible recipients are delayed access because of simple administrative errors than fraudsters are kicked off the rolls.

Speaking of eligibility, several lawmakers would be happy to revoke coverage for roughly 50,000 undocumented immigrant children in All Kids, which the federal government does not provide matching funds to serve. To her credit, DHFS Director Julie Hamos said the Quinn administration would fight tooth and nail to keep these children insured. For starters, it's good public policy; kids are relatively cheap to cover (about $1,000 per year) and the resulting public health benefits far outweigh those costs. It's also a strong moral stance, one that acknowledges children have almost no agency to help navigate the nation's broken immigration system on their own.

As expected, implementing more private managed care was a big topic of discussion. The GOP has made support for this issue almost mandatory in their caucuses. Former GOP gubernatorial nominee Bill Brady brought it up constantly on the trail, making wild claims that placing recipients in HMOs could save Illinois between $1.2 billion to $1.8 billion annually. But State Rep. Barbara Flynn Currie (D-Chicago) raised valuable concerns about that approach, which we've discussed ad nauseum in the past. "I don't think we want to jump in with both feet," Currie said on Tuesday.

What's the problem? During the 1990s, patients faced a series of "failures, abuses, and outright fraud" perpetrated by private managed care organizations. One particular group systematically avoided enrolling pregnant women and unhealthy patients between 2000 and 2004, despite receiving $234 million from both the state and federal government to do just that. Plus, two public programs in Illinois that are using managed care principles would be eviscerated by a mandatory switch towards the private model; in FY 2009, Illinois Health Connect (which links up 1.7 million Medicaid recipients with primary care doctors) saved the state $140 million while Your Healthcare Plus (which helps 220,000 Illinoisans more effectively manage chronic diseases) saved another $300 million. William Foley, CEO of the Cook County Health and Hospitals System, advised the legislature to "enhance and expand" those coordinated care options.

One key theme that emerged over and over during the hearings is that Illinois is actually moving forward with many of the reforms spending hawks have recommended. Gov. Pat Quinn has already launched a private managed care pilot program for approximately 38,000 elderly and disabled Medicaid beneficiaries from Northeastern Illinois. The state operates a voluntary private managed care program that enrolls roughly 145,000 people. The legislature passed a law this year establishing a Medicaid Transparency Program to help root out abuse. And Hamos told the panel Tuesday that she is already investigating ways Illinois can begin paying providers based on performance, not services rendered. These efforts help hold down costs per patient. Illinois spends less than 41 states using this metric.

Republicans looking to hack away at Medicaid must realize that there just isn't a lot of excess fat to be cut. The primary reason the size of Medicaid is growing is because demand is booming. Between December 2007 and December 2009, enrollment increased in Illinois by almost 200,000 people. In an employer-based health care system, rising unemployment is correlated with shrinking insurance coverage.

And while overall costs are rising, Illinois has actually reduced the percentage it contributes recently, thanks to an increase in assistance from the federal government, local governments, and providers. This chart from the Center for Tax and Budget Accountability shows the breakdown. As it makes clear, Illinois only spent $4.3 billion of its own tax dollars on Medicaid in FY 2009:

This unique funding structure is what makes Medicaid such a bargain for Illinois; for every dollar we spend, another dollar is funneled into the economy, providing jobs for doctors, technicians, custodians, and administrators who in turn spend money in their communities on mortgages, groceries, and other consumer goods.

It's undeniable that the cost to the state of maintaining Medicaid will grow in coming years. If the job market continues to sputter and poverty spreads, more people will become eligible. The federal government is planning to lower the matching rate that it pays states for reimbursements back to 50 percent after covering a larger share of health care costs for two years using stimulus funds. The new federal health care reform law expands Medicaid eligibility, which will beef up the rolls in the Land of Lincoln by roughly 700,000 people in 2014. (It's an amazing deal, given how much money will come from Washington to help state governments cope with the influx, but requires additional cash nonetheless.) And one of these days, Illinois will need to have a serious discussion about boosting the rates it pays to Medicaid providers, which are extremely low compared to the rates paid out by Medicare. (First, we need to make sure those doctors are paid on time and in full.)

The federal government, which can deficit spend during recessions, should probably take over a far greater share of the system's finances. Until they do, the greatest reform out there lawmakers can pass to protect Illinois' Medicaid system is fundamental tax reform. As CTBA wrote in its budget report earlier this year, we "assess our tax burden in an unfair fashion that impedes revenue collection, constrains economic growth, and worsens long-term income inequality." Fixing that problem will allow state government to keep its medical safety net strong, just as most Illinois residents would like it to be.

** UPDATE (12/17): The section on institutions has been edited for clarity.