ONCE UPON A TIME . . .

The year was 1997, and the Clinton administration was fighting with the Republican congress over Medicare. To help balance the budget, Republicans proposed transforming Medicaid from a federal entitlement program into fixed block grants to the states. In effect, this would have put a cap on federal Medicaid spending, and left it to the states to figure out how to deal with rising Medicaid expenditures. And so, not surprisingly, the nation's governors were strongly opposed to the move. In a letter to President Clinton written on April 14, 1997, the National Governors Association stated:

We adamantly oppose a cap on federal Medicaid spending in any form. Unilateral caps in federal Medicaid spending will result in cost shifts to states, enabling the federal government to balance its budget at the expense of the states. Under a cap, once the federal spending obligation is fulfilled, states would become solely responsible for meeting uncontrollable program cost increases, stemming from things such as new drug treatments, lawsuits, and disasters. In confronting this cost shift, states would be presented with several bad alternatives. States would have to choose between cutting back on payment rates to providers, eliminating optional benefits provided to recipients, ending coverage for optional beneficiaries, or coming up with additional state funds to absorb 100 percent of the cost of services.