Both chambers of the Democratic-controlled legislature on Thursday sent Governor Pat Quinn a bill that would slice spending on Medicaid, the joint federal-state healthcare program for the poor, by $1.6 billion by reducing eligibility and provider rates and cutting or eliminating programs.

"The status quo would have led to Medicaid's collapse, and I am pleased to see the General Assembly take strong action to put our Medicaid system and our state on the path to sound fiscal footing," Quinn, a Democrat, said in a statement.

The House on Friday passed another major component of the governor's $2.7 billion Medicaid reform plan - a near doubling of the state tax on cigarettes to $1.98 a pack.

Quinn, who unveiled his Medicaid plan in April, has said the tax hike would raise $335.7 million a year, which would boost federal matching funds for Medicaid by a like amount.

The bill also tackles a problem increasingly being faced by nonprofit hospitals in the state - the level of charity care they must provide to qualify for property tax exemptions.

Illinois has stripped some hospitals of their exemptions, forcing them to eventually make millions of dollars in local property tax payments. Credit rating agencies have warned hospital ratings could fall as a result.

The bill, which heads to the Senate for a vote, establishes "clear standards" that nonprofit hospitals must meet to qualify for exemptions, according to the Illinois Hospital Association, which supports the measure. The bill also establishes an assessment on hospitals to raise $190 million in additional federal Medicaid funds, the group said.

Another measure was aimed at restricting the amount of Medicaid bills incurred in one fiscal year that are pushed into the next fiscal year, according to Steve Brown, spokesman for House Speaker Michael Madigan.

Quinn last month also proposed a plan to save $65 billion to $85 billion over 30 years through changes in the state's severely unfunded public employee pension system.

Spokesmen for the speaker and for Senate President John Cullerton said negotiations on pension reforms were ongoing.

"There are lots of conversations and those will probably continue through the next week," Brown said, adding that one part of Quinn's plan - raising the retirement age to 67 - is not going to happen.

Lawmakers earlier this month sent Quinn a bill that aims to rein in retiree healthcare costs. But the business-backed Civic Committee of the Commercial Club of Chicago said a massive reform of the pension system was needed.

"Anything less than comprehensive, meaningful pension reform would be a slap in the face to our pensioners, taxpayers, our future generations and bond-rating agencies," the group said in a statement.

Standard & Poor's Ratings Services has warned of a multiple-notch downgrade in Illinois's A-plus rating if progress is not made in the current legislative session to address fiscal problems that include an $83 billion unfunded pension liability and a structural budget deficit fueled by billions of dollars in unpaid, overdue bills.

Meanwhile, the House this week passed legislation that would expand casino gambling by adding five casinos, including one in Chicago, and slots at race tracks.

State Representative Lou Lang, the measure's sponsor, said it could raise an estimated $400 million to $500 million from licensing fees for the upcoming fiscal 2013 budget.

Quinn, who vetoed a gambling expansion bill last year, said the new one still falls short of ethical standards and other protections he laid out last fall.

(Reporting By Karen Pierog; Editing by Leslie Adler)

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