Illinois Governor Ties Medicaid Reform to Higher Cigarette Tax

Illinois Governor Ties Medicaid Reform to Higher Cigarette Tax
May 9, 2012

John Skorburg

John Skorburg passed away on Saturday, March 22, 2014. We're keeping his bio online as a small... (read full bio)

Illinois Governor Pat Quinn (D) has announced a plan to “stabilize Illinois’ Medicaid system and prevent collapse of the program” that includes a $1 per pack increase in the cigarette tax. This would more than double the Illinois cigarette tax.

State budget officials project the tax increase would bring in $337.5 million annually. With federal matching funds the total revenue increase would be $675 million to plug a $2.7 billion Medicaid budget hole.

The Quinn plans also calls for service cuts and “efficiencies” totaling $1.35 billion, and reduced pay rates to medical providers saving the state another $675 million. These service cuts and efficiencies, combined with the additional state and federal revenues and lower pay rates to service providers would close the state’s $2.7 billion Medicaid budget hole, Quinn said.

System Near Collapse

“We must act quickly to save the entire Medicaid system from collapse, and protect providers and the millions of Illinois residents that depend upon Medicaid for their healthcare,” Quinn said in announcing his plan. “This proposal will fundamentally restructure our Medicaid system, alleviate the pressures on the rest of our budget, and ensure the program is sustainable for years to come.”

"The American Cancer Society is pleased to see the governor combining smart fiscal and public health policy with this proposal,” said Katherine L. Griem, president of the Illinois Division of the American Cancer Society.

Kristina Rasmussen, executive vice president of the Illinois Policy Institute, said Quinn in February “told lawmakers that in order to rescue Illinois’ Medicaid program, the state would need to ‘reduce expenditures in the program by $2.7 billion’ for fiscal year 2013. But the plan he released in April does not reduce expenditures by $2.7 billion as promised.

More From Lower-Income Earners

“Instead, his proposal reduces Medicaid spending by only $2 billion, the bulk of which comes from cuts to reimbursement rates for doctors and hospitals who serve Medicaid patients,” Rasmussen said. “In order to fill the gap between his plan and his target, he proposed hiking taxes on cigarettes to raise nearly $700 million in new revenues. Worse yet, these taxes are aimed primarily at the lower and working classes, with the average smoker’s household income falling below $36,000 per year.”

“Despite Gov. Quinn’s claims to the contrary, a tax hike is not the same as a spending reduction,” said Rasmussen.

Brent Mead, state government affairs manager for the National Taxpayers Union, wrote in an open letter to the Illinois General Assembly, “Cigarette tax increases are not good public policy because such taxes disproportionately burden the poor and are unreliable sources of revenue. Raising the cigarette tax by $1 per pack – a 102 percent increase – will give Illinois the dubious honor of having one of the highest state-level taxes in the nation. ”

John W. Skorburg (jskorburg@heartland.org) is associate editor of Budget & Tax News and a lecturer in economics at the University of Illinois at Chicago.

John Skorburg

John Skorburg passed away on Saturday, March 22, 2014. We're keeping his bio online as a small... (read full bio)