How fair is Medicaid to the poor, to providers, and to taxpayers? Intended as a welfare program for the poorest and most severely disabled members of society, the Medicaid program today is crippled by major inequities that threaten to violate that promise. Even before proposed Medicaid expansions that could add 15 million new beneficiaries, every state legislature is now struggling to find a balance between fiscal prudence and efficient delivery of medical services. Medicaid today presents a major challenge to state governors who are faced with an increase in the demand for Medicaid services and declining state revenues. It is imperative, therefore, to examine the Medicaid program, how it functions, and how it ought to be reformed.

Health economists Thomas W. Grannemann and Mark V. Pauly do just that in their new guide to the Medicaid program, Medicaid Everyone Can Count On: Public Choices for Equity and Efficiency (AEI Press, March 2010). This comprehensive study is guided by one fundamental question: what would health care programs for the poor look like if they were based on principles of equity, efficiency, and accountability? Today's Medicaid is flawed by unequal benefits among the states, federal funding that is disproportionate to state needs and resources, and disparities in payment to health care providers. Rectifying these flaws will require substantial changes in the way the program is financed and how it pays providers.

At this AEI event, Grannemann and Pauly presented their findings and explained how a new approach to federal financing and provider payments might improve the flawed incentives that now make the Medicaid program both inequitable and inefficient. John Colmers, Maryland secretary of health and mental hygiene, and Colleen M. Grogan, an associate professor in the School of Social Service Administration at the University of Chicago whose fields of special interest include health policy and health politics, discussed the authors' proposal. AEI's Robert B. Helms moderated the discussion.