CHICAGO – Illinois stands to lose $40 billion in federal Medicaid funding over the next 10 years under the current Republican plan to replace the Affordable Care Act.

Moody's Investors Service in a special report Friday warned that the legislation poses a credit negative for states.

The warnings from Illinois over lost funding and the impact on healthcare services came from industry officials Thursday during legislative hearings on the impact of Medicaid changes in the House Republican-sponsored replacement of the ACA which is backed by the Trump Administration.

"IHA has serious concerns with the proposed legislation since it will result in the loss of coverage for hundreds of thousands of Illinoisans as well as significant Medicaid funding reductions for Illinois, seriously impacting the state's budget and economy," David Gross, senior vice president for government relations at the Illinois Health and Hospital Association, told lawmakers.

The group represents 200 hospitals and 50 health systems.

"Conservatively, Illinois would be facing a loss of at least $40 billion in federal Medicaid funding over the next ten years. This is at a time when the state is not well-positioned to absorb the costs. That would be shifted to the state," Gross added.

Overall, states stand to lose a total of $880 billion in funding between 2017 and 2026, reaching a 25% lower federal spending level by 2026 compared to current-law projections, according to the Congressional Budget Office's analysis of the legislation.

The proposed federal bill would phase out the current funding model for the ACA's Medicaid expansion by reducing federal reimbursements for new enrollees beginning in 2020. The plan also converts Medicaid support to a per capita capped funding structure.

Illinois was among the states that took advantage of the ACA's Medicaid expansion that covers the full cost of coverage through 2017. While the federal government initially covered 100% of the costs for covering new recipients, the subsidy drops this year to 95% and then to 90% in 2020.

The IHA said about 650,000 of the 1 million state residents that sought coverage through the ACA qualified for Medicaid. According to the Congressional Budget Office analysis of the proposed overhaul, about 24 million nationally would lose coverage, including 14 million Medicaid recipients.

The IHA also warned that the loss of funds could have a trickle-down effect, reducing related economic activity by $7.6 billion to $8.4 billion.

The group and hospital representatives also warned of the detrimental impact on hospital finances that have benefited from the ACA by seeing a drop in its uncompensated care and an overall improvement in volume levels and payer mixes.

More than 40% of Illinois hospitals are operating in the red and lost revenue could force the elimination of jobs and services and delay needed capital investments, the IHA warned.

"The expansion has taken us to a new level…beyond survival," Roberta Rakove, senior vice president for government and public affairs at Sinai Health System, testified. "We simply cannot afford to lose it." The system has seen a drop in uncompensated care that's allowed it to expand some services and cuts would make it difficult to maintain those services and repair aging facilities.

Illinois can ill-afford any additional strains given its rising budget deficit, bill backlog, and pension liabilities, officials warned.

Moody's called the legislation a "credit negative for U.S. states in its present draft because it creates a new Medicaid cost-sharing formula that shifts a greater share of Medicaid expenses to the states."

Moody's described the per capita funding cap as the most significant proposal in the package because it represents "a fundamental change from the current Medicaid cost sharing model and will result in a greater funding burden for states."

The federal Medicaid baseline would be set at fiscal 2016 expenditures, with future annual growth rates tied to the medical care component of the consumer price index. Federal expenditures currently are not capped and grow at the rate necessary to fund its annual percentage allocation. States unable to keep program spending growth to the inflation rate would see their cost burden increase.

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