Good Idea: A Federal Waiver.

President Bill Clinton has indicated a willingness to relax some Medicaid restrictions and grant Medicaid waivers to state governments, which would free up Medicaid money and permit local officials to make allocations based on community needs. The American Legislative Exchange Council (ALEC) has created a model "Rural Hospital Deregulation Act" that would provide regulatory relief to rural hospitals through federal waivers. This would permit a wider, more efficient use of rural medical personnel, clinics and hospitals.

Good Idea: Decentralize Medicaid.

Better Idea: Decentralize All Welfare.

"All means-tested welfare spending should be turned over to local communities."

Good Idea: Privatize Medicaid.

Mediocre Idea: Managed Care for Medicaid Recipients.

Bad Idea: Ration Health Care.

The Oregon plan draws our attention to the uncomfortable fact that if we tried to meet every health care need, we could easily spend the entire gross national product on health care. As a consequence, we must choose between health care and other uses of money. The plan also invites us to consider that if government controls our health care dollars, then government must make the rationing decisions. If we control our own health care dollars, we can make our own decisions.

"The appropriate way to fund health care reform is through general tax revenues."

STATES TAKE UP MEDICAID REFORM

Absent any help from Washington, some states are beginning to take action on their own to revamp their Medicaid programs and cut costs. While the federal government finally achieved certain reforms in welfare this year, Medicaid -- which is much more costly than other general welfare programs -- went untouched. Medicaid provides health assistance to the poor.

• While 12.8 million people receive benefits under the Aid to Families with Dependent Children program, Medicaid covers 37.5 million.
• The three largest welfare programs -- AFDC, food stamps and Supplemental Security Income -- cost $77 billion per year, compared to $156 billion for Medicaid.
• On average, the proportion of states' budgets devoted to welfare is 4 percent, while Medicaid eats up 19.2 percent.
• Combined state and federal spending for Medicaid consumes nearly 20 cents of every tax dollar.

Republicans believe that states can do a more efficient, cost-effective job, and want to turn management of the programs over to them. President Clinton wants Washington to retain control.

To the extent they can get exemptions from federal rules, the states are deciding what health and nursing-home care to provide to whom, and at what cost. These hard choices are necessitated by the explosion in Medicaid coverage and costs.

• The Medicaid caseload has grown from 10 million in 1967 to today's 37.5 million.
• Costs have skyrocketed from $5 billion in 1970 to $156 billion last year.

Sixteen states plan Medicaid reductions in their 1997 budgets.

• California plans to eliminate nine optional classes of benefits.
• Florida plans to move more nursing home residents into community-based settings.
• New York, the state with the most generous Medicaid program, plans to scale back its commitment to managed care.

Many states are opting to cut back on managed care, since about one-third of all recipients are in managed care plans. Other ways states attempt to control costs:

• Iowa put mental-health services up for bid at no more than 86 percent of current per-person expenses -- thereby immediately saving 14 percent of expenditures.
• Michigan put 80 percent of its Medicaid clients into managed care and cut the escalation of costs from 11 percent to 1 percent in a year.
• Wisconsin has used home and community care for the elderly to cut its nursing-home population by 17 percent since 1980 -- even while it was rising by nearly 50 percent nationally.

Currently, 11 percent of Medicaid patients receive Medicare -- and consume 30 percent of Medicaid's costs. Medicare covers hospitalization, while Medicaid pays for long-term care. Federal rules prohibit managed-care plans from being forced on Medicare recipients.

Experts say Medicaid's complexity remains an obstacle to reform.

Source: Richard Wolf, "Medicaid Outcome Will Affect All," USA Today, September 9, 1996.

INVENTIVE USES FOR MEDICAID MONEY

Medicaid costs are rising far more rapidly than inflation, demographics or poverty can justify, analysts say. One clue to the growth in the $100 billion-a-year program came in a curious letter sent by the Illinois State Board of Education to school district superintendents.

The letter reportedly describes in detail how public schools can exploit Medicaid to funnel a fresh flow of taxpayers' money into public schools.

Stating that "the potential for dollars is limitless," the letter claims that "Medicaid dollars have been used for purchases ranging from audiometers to minibuses, from a closed-caption television for a classroom to an entire computer system, from contracting with substitutes to employment of new special education staff, from expanding existing special education programs to implementing totally new programs."

The letter "encourages" local public schools to use the experienced State School Board staff in order to "maximize federal reimbursement" of Medicaid dollars and use the "opportunity" to bill Medicaid for money already spent in 1994, 1995 and 1996. The letter was signed by the board's "Medicaid consultant."

• In fiscal 1996, $72.5 million in federal funds were paid to Illinois schools for Medicaid programs.

• When health care is provided by and in public schools, say critics, there is no way to separate welfare children from others -- all are eligible.

In 1986, Congress allowed states to expand Medicaid to cover children in families with incomes below the poverty line. In 1990, Congress required the states to provide Medicaid coverage to all poor children by the year 2002, and allowed states to extend Medicaid even further to the nonpoor

Source: Phyllis Schlafly, "Smoking Gun in the Medicaid Mystery," Washington Times, January 18, 1997.