CHICAGO -- Illinois officials have missed a Dec. 20 federal deadline to explain how they will pay $900 million of overdue Medicaid bills, while they continue to debate a possible debt restructuring plan to cover the cost.

The Health Care Financing Administration is reviewing Illinois' plans to shift 1.1 million Medicaid patients into a managed-care program known as MediPlan Plus. On Dec. 2, agency officials delayed a decision on the state's application for a waiver of federal law and asked for more detailed explanations of the plan's operation and funding.

Robert Wright, director of the Illinois Department of Public Aid, sent a 113-page response to Washington last week but did not address questions from the federal government about financing the new plan or paying the old bills.

An agency spokeswoman said there is no formal penalty process if the deadline has been missed. She said, however, that failure to fully respond to the agency's queries could mean a delay in a decision on the application.

State officials say they'll send a response to the financial questions by the end of the month, but it's unclear whether that response will include a final go-ahead on the bond restructuring proposal. Mike Lawrence, press secretary to Illinois Gov. Jim Edgar, said he doesn't know when officials will make a determination on the debt refinancing.

Edgar aides early this month suggested restructuring the state's outstanding debt in order to pay the overdue Medicaid bills. A similar plan was shot down by the Illinois General Assembly last year. However, it stands a far better chance in the current session because Republicans control the governor's office and both houses of the legislature.

Lawrence stressed that any revenues saved by bond restructuring would be applied strictly to the overdue bills and not to fund the proposal to shift 1.1 million Medicaid patients into MediPlan Plus.

Paying those bills "is what [the restructuring] was intended to do when we proposed it, and the goal hasn't changed. We still do have the [$900 million] backlog" in unpaid bills, Lawrence said.

Mike Colsch, the state's deputy budget director, has said the tentative plan would involve restructuring about $800 million of outstanding general obligation and Build Illinois sales tax revenue debt. Through the restructuring, the state could realize up to $550 million in savings to be applied to overdue bills.

Even if the restructuring plan succeeds in the face of rising interest rates, the state would still be wallowing in red ink.

A $550 million payment would leave $350 million in overdue bills. And the federal government notified state leaders just days before the Dec. 20 deadline that they may have to pay a $400 million penalty for improper health taxes levied several years ago.

Officials with the U.S. Department of Health and Human Services last week sent a letter to the state suggesting its "granny" tax, or per bed levy on nursing homes, may have violated federal law. Illinois enacted the tax in 1992, but reduced it dramatically the next year. However, the state received $400 million in federal matching funds during that period, in part because of the tax. Illinois may have to give all or part of the $400 million back to the U.S. government.

Lawrence downplayed the effect of the federal challenge on the state's budget. "First of all, we don't agree with the federal government, and we are going to contest it ... and I would wager a year of my salary that Illinois will not end up paying near the $400 million that's being talked about, given the history of these kinds of disputes," he said.

Illinois no longer requests federal funds to match the granny tax revenue, and therefore will not experience any additional budget shortfall because of the federal challenge, Lawrence said.

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