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Illinois Cuts Medicaid to Keep Paying State Pensions

Written by Gary North on March 9, 2012

The state of Illinois is a train wreck in action. It can’t pay its bills.

It has come down to this: Medicaid or pension payments to retired state workers. The politicians have decided to pay state retirees. Does this surprise you? Let’s see: politicians either stiff the poor (who do not vote in large numbers) or stiff the state’s unions (who do vote in large numbers).

The governor says the state must face the music. It’s more like a song and dance.

To save a system he says is “on the brink of collapse”, Mr Quinn proposes cutting $2.7bn from Illinois’ $11.5bn Medicaid bill. Few would dispute that the state needs to change its behaviour. Last year, Illinois underfunded Medicaid by $2bn as it struggled with debts totalling more than $280bn, an $86bn hole in its public pension funds and a $9bn backlog of unpaid bills.

The Medicaid tab has grown since the financial crisis, which pushed more people into poverty. In 2007, 2.1m Illinois residents were eligible for the low-income programme. Today, 2.7m qualify – 1.7m of them children, according to the state’s department of healthcare and family services.

The state looks like a doomed beast.

To stem the growing shortfall in its public pension funds, Illinois pledged to pay its full pension obligations – $5.2bn next year – without borrowing, something budget watchdog groups have long urged it to do.

However, the state can only afford to do this by cutting sharply elsewhere. “This represents the ‘crowding out’ of spending as a result of the demands of the pension system,” says Joshua Rauh of Northwestern University.

This is the first shot. There will be lots of other shots over the next 20-30 years.

In that sense, Illinois – which has the most underfunded public pension system in the US – could be a leading indicator for a pension crunch that will hit other cash-strapped states. “We’re going to see more and more states cutting spending to meet pension obligations mandated by the state’s own statutes,” says Prof Rauh.

In Illinois, the axe will not just fall on healthcare spending. Among other big cuts, Mr Quinn also proposes closing two state prisons and six halfway houses. Already, the system’s 48,620 inmates are crammed into space designed to hold 33,704, according to the state’s department of corrections.

Inmates don’t vote.

Illinois is only remaining solvent by not paying its bills on time, a practice that hurts thousands of small contractors that do business with the state. When payments do arrive, they are often incomplete. If Illinois continues this practice, it will rack up $35bn in unpaid bills by 2017, according to the Civic Federation, a Chicago think-tank.

Yet state legislators are in little mood to cut spending when they are facing re-election in November. Mr Quinn declines to specify what programmes should be cut, saying this is a decision for the legislature. Many expect this to water down the proposed cuts.

The welfare state is going bankrupt, all over the world. Illinois is the poster child of this development.

Be prepared, wherever you are.

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16 thoughts on “Illinois Cuts Medicaid to Keep Paying State Pensions

  1. billstanley1 says:

    "The welfare state is going bankrupt, all over the world. Illinois is the poster child of this development." === California has already claimed that title. http://www.newsandopinions.net

  2. WorkerAnt says:

    Did these pensioners pay into the retirement system? If so….then by all means they should get their money first rather than supplement those 50% that pay no taxes and have put nothing into the system. Additionally, many of these pensioners are elderly and cannot work….so it doesn't make sense to cut them off and divert the funds to those younger who may be physically able to work….and pay taxes. I am a pensioner and have worked from the age of 14….always paying into the system for over 50 years. Now I'm pushing 70 and I don't want to hear how I'm not entitled to what I've earned and paid for and those on the public dole who have contributed nothing deserve it. It's this type of political insanity brought about by the entitlement class whiners that have gotten these states and the nation into the untenable predicament that they are in. It's a matter of priorities……we waste hundreds of billions of taxpayer dollars each year…..from tricycle safety research grants to grants to rebuild Islamic Mosques in Egypt (WTF?). We hemorrhage further billions to 3rd world sinkholes where most of the money never gets to help anyone but the corrupt tinpot dictators in power who have nothing but contempt for the US.

  3. Well said!!

  4. SEAN MURRY says:

    This state has always been a train wreck look at the corruption in Chicago.

  5. William 1 says:


  6. Most State pension funds favor the pensioners and not taxpayers, so those funds are flat out wrong and needs to be evaluated and restructured to bring those State pensions in line with typical private sector retirement funds… no life-long health care insurance, no annualy increases across the board, etc.. Oregon has a similar State pension fund and it is on the brink of bankrupting the State.

  7. guest on this planet says:

    By state law in Illinois , public education is to be fully funded by the state > Unfortunately the state only provides only 25 percent of the funding , the rest is paid by the homeowners property tax > Now the state wants to drop the teachers unfunded pension onto the homeowners backs and not have to pay anything . They will still make sure that the state workers and politicians pensions are paid > My wife has taught at a junior college here for 21 years as an adjunct professor and her pension will be about 550 per month . , she is not eligible for social security because the state pension is in place of ss. Hell if she never worked a day in her life , she probably would get more from ssi as the welfare folks do > Just fed up with politicians and this state of corruption.

  8. David R. (Canada) says:

    The problems stem from the fact that, in many cases, unionized public workers do not pay into their pensions; the taxpayer does. The taxpayer cannot afford it any longer.
    I hope you as a 70 year old will not need Medicaid. But then, with your pension, you probably won't need it!

  9. David R. (Canada) says:

    The obvious solution for the educational system is to get rid of the public schools and unionized staff. Private schools with non-union staff would run a lot more efficiently and scholastic standards will improve. (They couldn't get much worse!)

  10. I'm older than you but I couldn't have said it better. I'm sick of the freeloaders. Back in our day there wasn't any welfare or food stamps. America used to be a nation of workers not loafers with their hands out.

  11. FYI in case you didn’t notice the majority on Medicaid in Illinois were children. As we all know and the.article states they aren’t votes for state politicians. Hence the.reason they get screwed over by old people.

  12. Frank Norton says:

    The human species is the only animal that is not culled out of the group when one of them is a disavantage and burden to the group. There is no welfare or social security to species that have existed for millions of years. Too bad humans think god all mighty will spare them and take care of them, feed and house them like little children. People , wake people up and smell the roses.

  13. WorkerAnt says:

    Yeah….and now it's in Washington DC.

  14. WorkerAnt says:

    I agree with you 100%. Certain states are in this mess because they succumbed to pressure from the unions at the bargaining table. The irony is….eventually the unions will kill the goose that lays the golden egg. I think of it as suicide by greed. There have been countless companies/corporations who have been forced to move operations out of the state they were in or out of the country totally in order to make a profit. In many, many cases organized unions are responsible for this and it's the union members who end up out of work. It's no coincidence that everything is made in China, Honduras, Vietnam, Mexico and a myriad of other places. All that revenue is bleeding out of the US. Hell…our newest fighter jet is going to be produced in Brazil! How many jobs is this costing Americans? Is our technology safe in Brazil? Any wonder why the economy is in the dumper?

  15. steve lloyd says:

    Only in America, Having a friend in Illinois that just retired from being a correctional officer on midnites for the last 30 years IS ILLIONOIS PENSION RITCH FOR THE REST OF HIS LIFE, OH yea lets start with the fact he is now fifty years old. First year of salary pension is 54.000 dollars plus 100% paid Med. insurance. one year from now coga kicks in paying cost of living increase usually 3% so second year salary will be 55.620 dollars just keep compounding 3% cost of living well heck, at age 70 he will be making over 100.000 dollars year not bad, hey his grandfather lived to be 100. I will leave the calculating to you. Job well done sitting in a tower for thirty years on mid nites.

  16. Isn't it just curious that EVERY state that has cities that are insolvent to the extent they can't afford to pay anything BUT the unions
    are ALL democrat dominated for the last 30 or 40 years and are abjectly controlled by unions.