For the federal government, Medicaid is a deal. It provides fairly comprehensive health care coverage to more than 50 million people at a significantly low cost. For states, on the other hand, Medicaid isn’t so great. On average, the federal government only covers 57 percent of Medicaid’s tab, leaving the rest for state governments to handle.
In normal economic times, states do an adequate job of covering their share of Medicaid costs, but thanks to the economic collapse, state finances are collapsing under the strain. From 2007 to 2010, eight million people joined Medicaid rolls, and according to an analysis  done by the Wall Street Journal, Medicaid now accounts for more than 20 percent of total state spending in 25 states:
The problem for states is that the federal government’s supplementary Medicaid funding runs out in July, and absent that support, Medicaid becomes completely unsustainable for most state budgets. As such, some governors (mostly Republicans) are lobbying for relaxed Medicaid rules, so that they can tighten eligibility standards and lessen the strain on their budgets without raising taxes. Here’s the Washington Post with more :
There is a growing impatience among governors,” said Mike Schrimpf, communications director for the Republican Governors Association. “As the Medicaid portion of state budgets grows, the issue becomes even more pressing.”
This week, 29 GOP governors wrote a letter asking congressional leaders for greater flexibility in spending Medicaid dollars. They say that would give them much-needed control over the soaring cost of Medicaid, often the largest single item in state budgets.
This points to a major failure of the 2009 stimulus; in hindsight, the package should fully covered Medicaid costs through the recession and slightly beyond, to stabilize state budgets. Indeed, to step outside the realm of the possible for a moment, it would have been best if the permanently federalize Medicaid, removing it from state budgets and guaranteeing health care coverage for millions of low-income Americans.
The Affordable Care Act does some of the work here, in that it greatly expands eligibility for Medicaid, but it also keeps the basic structure in place. Medicaid will remain a federal/state partnership, when it really should be a federal program administered by the federal government.
Unfortunately, with massive cuts to the program looming  as part of a debt reduction bill, now seems to be the wrong time to talk about making Medicaid more sensible and more robust.