Illinois will face future credit downgrades if it expands Medicaid

Jonathan Ingram There are plenty of reasons to oppose trapping more Illinoisans in a broken Medicaid program, but Moody’s Investors Services has given the state one more: expanding Medicaid will lead to credit downgrades. Remember: Illinois already has the worst credit rating in the nation. Moody’s, Standard & Poor’s and Fitch Ratings have downgraded the state 11 times since Gov. Pat...

Jonathan Ingram

There are plenty of reasons to oppose trapping more Illinoisans in a broken Medicaid program, but Moody’s Investors Services has given the state one more: expanding Medicaid will lead to credit downgrades. Remember: Illinois already has the worst credit rating in the nation.

Moody’s, Standard & Poor’s and Fitch Ratings have downgraded the state 11 times since Gov. Pat Quinn assumed office in 2009. Credit problems were so bad that the state had to delay a $500 million bond sale back in January.

That makes Moody’s warning all the more serious. You see, Moody’s recently warned states that they would be subject to downgrades based on their “economic sensitivity to federal spending reductions” or their “dependence on federal transfers.”

Given that Medicaid is one of the largest federal transfers that states receive, it’s no surprise that Moody’s analysts singled Medicaid spending out as a red flag. Moody’s indicated that they would treat Medicaid spending as a key indicator of dependence on federal funds. And Illinois is quite dependent. Only eight states receive more federal Medicaid funding than Illinois.

Of course, expanding Medicaid would greatly increase dependence on federal funds. That’s part of what makes the expansion so risky, given the fact that President Barack Obama has proposed shifting more Medicaid costs to the states in each of his last three budgets. That’s likely a big reason why the credit agencies are warning states that increasing their dependence on the federal government through Medicaid expansion would likely lead to further downgrades.

Illinois has more than $9 billion in unpaid bills. Under new accounting rules, the state’s unfunded pension liability tops $200 billion. The state owes another $54 billion for retiree health insurance and billions more for general obligation bonds. Does the state really need to add another reason to be downgraded?