Some formidable challenges lie ahead.
We've suggested a few already in this, the magazine's 30th anniversary year. We've assessed the changing economy, analyzed potential impacts on the nature of work and outlined possible implications for policy. And we've raised a few of the ethical questions that underlie advances in biotechnology.
In the months ahead, we'll get down to brass tacks on the state's physical infrastructure and take another extended look at education funding.
But this month we deal with a subject only an actuary would automatically warm to: the future viability of the state's benefit programs for older Illinoisans.
This might not be the glitziest issue our writers and editors will tackle this year, nor, at first blush, does it seem the most pressing. Yet no challenge is likely to be as daunting to today's politicians, or as crucial to tomorrow's citizens, as aligning Illinois' fiscal structure with its long-term social commitments.
There'll be debate this spring about the state's ballooning financial liability for retired public employees, including former state and university workers, downstate teachers, judges and lawmakers. And there'll be discussion about skyrocketing costs, including those for seniors, under Medicaid, the joint federal and state health insurance program for low-income Illinoisans.
We hope to offer some context on those different, but related issues.
Not that any of this should come as a surprise. The rising costs of meeting these two obligations have crossed the political radar off and on for some time, decades actually. But over the past three or so years, the state has been so strapped for cash that it finds itself in the same straits as some of Illinois' low-income seniors: If I pay the light bill or the rent today, can I cover the doctor's visit or the pills tomorrow?"
Among the biggest bills are those the state is required to pay to the five public pension systems to cover future retirees' benefits and to Medicaid providers to cover health care services for the elderly and disabled.
The reality, though, is that these are our tax dollars in play, eventually our children's tax dollars and their children's tax dollars. And choices will have to be made. Priorities will have to be set. If not now, soon.
How bad is it?
Here's the near-term answer. Gov. Rod Blagojevich's budget office says Illinois government will be short $1.1 billion in fiscal year 2006, which begins July 1. Among the biggest bills are those the state is required to pay to the five public pension systems to cover future retirees' benefits and to Medicaid providers to cover health care services for the elderly and disabled.
Let's consider pensions first. State dollars, combined with contributions from employees and investment income accrued by the systems, are supposed to cover benefits. But in the coming fiscal year, the state must boost its payments to the systems by $600 million. In essence, that's an interest payment on the state's long-running unfunded liability in those systems — an attempt, if you will, to catch up on past-due bills.
Until 1995, when state officials set the payment schedule in law, they had a habit of finding other ways to spend dollars that should have gone to the systems. This year, the state will pay a total of $2.1 billion. Next year, it is scheduled to pay $2.6 billion.
But the long-term cost of state pensions also increased in recent years as officials added sweeteners designed to encourage early retirements and boosted the payout for workers in certain jobs. And as locals hiked school administrators' salaries near the end of their working years.
As economist J. Fred Giertz writes in this issue, pension costs have doubled over the past five years. If nothing changes, the governor's office estimates the state will owe $521 billion over 40 years.
Blagojevich hopes to chip away these future costs by, among other things, increasing the minimum employees can retire with full benefits, requiring school districts to fund increased benefits that stem from big end-of-career pay hikes and tying annual pension benefit increases for new employees to the rate of inflation.
His strategy for restraining the rising cost of Medicaid entitlements? He would adjust what the state will cover and restructure how it will pay for health care services.
One other change is working in his favor. Beginning in January, the federal Medicare program for all Americans over 65 will cover some of the costs of prescription drugs for seniors who also are on Medicaid. That won't be as big a boon for the states as governors had hoped, though. Most of the dollars saved will have to be turned over to the federal government. Still, Illinois should come out ahead.
For now, Medicaid costs continue to climb. Again according to the governor's budget office, the state's liability has grown by 61 percent since fiscal year 2000. And next fiscal year, the state's Medicaid spending is projected to surpass $8 billion.
Daniel C. Vock reports here that traditional services for the elderly and disabled accounted for two-thirds of the cost of Medicaid expenses in fiscal year 2003, according to an analysis by the Illinois Department of Public Aid. The agency also told Vock the highest increases stemmed from the rising costs of prescription drugs.
It should be noted, though, that Blagojevich has expanded the program by raising income thresholds for low-income parents and children under the KidCare and FamilyCare programs.
But the added expense of those beneficiaries likely will be outstripped within the next decade by another change. Vock stresses, as does reporter Maura Webber Sadovi in her article, that the nation is going gray.
In six years, Vock writes, "the first members of the baby boom generation will reach 65, the age when the poor among them will qualify for Medicaid assistance. The influx of eligible seniors will be a double whammy for governments footing the bill: Not only will the number of beneficiaries rise, but those new beneficiaries will require disproportionately expensive care."
The feds are wrestling with these same issues, including a deficit The Associated Press reports is projected to be $4 trillion by 2015. In this context, federal officials are taking their own look at entitlement programs. President George W. Bush is pushing changes in Social Security and $14 billion in cuts for Medicaid. The Senate rejected that proposal before spring break, but the states are likely to face some federal cuts that will further strain state budgets. And, according to AP, Social Security, Medicaid, Medicare and other entitlements account for about 42 cents of every federal dollar spent. And the estimated cost of Medicare's drug coverage provision just keeps going up.
What do we owe the nation's seniors and this state's retired public workers? What do we owe taxpayers, today's and tomorrow's? Over the next few years, federal and state policymakers will need to face up to these difficult and often competing fiscal, political and social obligations.
And this is a formidable challenge.
Peggy Boyer Long can be reached at Peggyboy@aol.com.
Illinois Issues, April 2005
