The rising Medicaid tab has taken an increasingly harsh toll on state governments, due in part to congressional expansions of the program, court decisions limiting states' ability to control costs and changes in demographics.

"It was a completely different program when it started," says Matt Powers, who heads the public assistance division of Illinois' budget bureau.

This year, states will spend a combined $140 billion on Medicaid for 28 million people. Illinois spent $5.33 billion this fiscal year — about 16 percent of the entire state budget — to serve 1.4 million clients.

The nation's governors proposed a slate of changes, which have met with mixed reviews, to help them deal with the burden of providing health care and welfare to poor people, including:

• reducing states' share of Medicaid costs from 50 percent to 40 percent. Critics point out, though, that increasing the federal share by 10 percent could drive up the federal deficit.

• requiring the federal government to provide an emergency fund for increased welfare caseloads.

• freeing the states to run their own Medicaid programs "without any special permission from the federal government" — meaning Gov. Jim Edgar would be able to proceed with his plan to move Medicaid patients into a managed care system, as he has proposed, without federal approval. The governors' plan also would give states "complete flexibility in defining amount, duration and scope of services" to Medicaid clients.

• retaining guaranteed coverage for most poor children up to age 12, pregnant women, and disabled and elderly recipients, while allowing states to drop optional coverage, such as prescription drugs for children and coverage for many teenagers.

• requiring states to spend at least 90 percent of 1995 funding levels for the disabled, but allowing them to define which disabilities are covered. Senior citizens who meet specific poverty standards would be guaranteed coverage, but middle-income elderly people who deplete their savings to cover the cost of long-term care might not be covered if they receive Social Security or if they have a spouse with income.

These ideas stem from the demand for local flexibility that helped fuel support for federal block grants many months ago. The grants, designed to reduce federal spending in such areas as welfare and health care, have been championed as a way to increase states' power.

Instead of continuing to fund individual welfare programs, for example, such as Aid to Families with Dependent Children or specific food programs for poor women and children, Congress would allocate lump-sum payments to states. Individual state legislatures then would be charged with divvying up these grants.

One grant — the Child Protection Block Grant — would combine 22 current child welfare programs, including those providing money for foster care and adoption assistance. Another, geared toward school-based meals, would combine school lunch, breakfast and nutrition education and training in one pot.

The original welfare reform legislation would have created six or seven new block grants, but conference committee action in Congress was expected to remove child nutrition and medical services to disabled children from block grant status. Those programs would be funded separately.

Upon learning of the likely arrival of block grants in Illinois, agency directors, members of Gov. Edgar's staff and budget officials like Powers began studying the state's existing framework of services to see how the grants could best fit in. It turned out the most effective way to pursue implementation, Powers says, was to follow up on certain programs already in place, especially the fast-track welfare reforms enacted last year.

Among other provisions, the welfare reform law prohibits AFDC payments to unmarried people under 18 who are pregnant or have a child, unless they live with an adult.

It also requires employable AFDC clients with children ages five to 12 to

6 * March 1996 Illinois Issues

begin job search programs while their children are in school. It requires 17,000 AFDC recipients whose kids are all older than 13 to find work and stay employed as a condition of receiving welfare.

And the Human Services Reform Task Force, appointed by Edgar in 1993 to examine human service delivery systems in Illinois, found that local people should be involved in making plans for their community's disadvantaged families and children.

Pilot programs set up in the Grand Boulevard community in Chicago, Waukegan, DuPage County, Springfield and the seven southernmost counties of Illinois are experimenting with this approach to determining community needs and resources.

Reforms like these help set the stage for Illinois to begin tunneling blocks of social service dollars into areas lawmakers and state officials deem appropriate, Powers says.

It was unclear at Illinois Issues' press time exactly how, when and if block grants would arrive in state coffers. By the time they come down, they may have more strings attached to them than was thought at the outset of the budget debate, say human service advocates. That's because the longer it takes Congress to settle on a budget, the more deals are expected to be cut and the more restrictions are likely to be placed on states in spending for certain programs.

In the meantime, many states, including Illinois, have proposed or have started experimenting with restructuring their human services agencies. Colorado, Indiana, Minnesota and Texas recently combined various programs under one department in an effort to improve service delivery and reduce administrative costs, although it's too early to assess the impact of the changes.

Gov. Edgar has proposed a more sweeping consolidation. He would merge seven human service departments, plus a handful of councils and commissions, into one agency.

Specifically, Edgar would merge the departments of Mental Health, Aging, Public Aid, Public Health, Rehabilitation Services, Alcohol and Substance Abuse and Children and Family Services.

Edgar has until April 1 to submit his formal plan, after which each chamber of the General Assembly has 60 days to "disapprove" it by a majority vote. If neither chamber disapproves it, the restructuring plan would take effect.

At least two of the agencies, the departments of Children and Family Services and Mental Health, have been plagued with controversy, and in recent years have been under court orders to improve their handling of clients.

Nonetheless, consolidation is an idea that a consortium of advocacy groups has endorsed to some extent for a few years. The Human Service Solution Coalition issued a paper to state officials in 1992 urging the elimination of redundant regulations, paperwork requirements and certification standards among state agencies. They say money may be saved and services improved.

Not everyone believes that the money saved will come from getting rid of paper-shuffling. Sharron Matthews, executive director of the Public Welfare Coalition, fears the merger will mean job cuts among caseworkers and others who deliver services to needy Illinoisans.

But David Stover of the Illinois Association of Rehabilitation Facilities is more optimistic, saying the potential merger means Illinois could make significant progress in client programs. He says reorganized state agencies will free up money for direct service programs by getting rid of a glut of middle management.

"I've been in this job for 21 years," he says. "I'm no damn fool. I've been lied to by governors, but I don't think I'm being lied to now. If I felt they were just rearranging chairs on the deck of the Titanic, I'd fight this. But they've convinced me they'll spend saved money on programs."

If state officials' faith in the positive impact of block grants in Illinois — and in Edgar's ability to streamline bureaucracy — is borne out, social service clients could reap benefits.

But for now, Powers emphasizes, nobody knows how much substantive change block grants will allow in Illinois. If the governors' proposals survive the federal budget negotiations, the idea of states' flexibility would get the trial, and the scrutiny, it has been waiting for. *

Gov. Edgar's budget address Funding details for the proposed restructuring will be outlined in Gov. Jim Edgar's budget address to the Illinois General Assembly, scheduled for noon Wednesday, March 6. Edgar's "State of the State" message earlier this year also hinted at more money for technology in schools and an expansion of the PreStart program aimed at reducing recidivism among those released from Illinois prisons. Edgar has also pledged to keep the state police's Air One helicopter from being grounded, and to continue support for threatened Amtrak lines. In addition, the governor has urged legislative approval of a domed stadium for the Chicago Bears adjoining McCormick Place Convention Center. He says the multipurpose center could be funded with existing taxes paid in the city. But Chicago's Mayor Richard M. Daley insists funding for such a project should be spread to the suburbs. Jennifer Halperin

Illinois Issues March 1996 * 7