In "Million Dollar Baby," Hilary Swank's character offers her mother a free house.  But the mother angrily rejects the offer, requesting cash under the table instead.  The reason: a house would disqualify her for welfare and Medicaid benefits.

Reform of at least one of those problems is well under way, thanks to Pete du Pont and then Bill Clinton and then (mostly Republican) members of Congress - all of whom promised to "end welfare as we know it."  What is now needed is to end Medicaid as we know it.

Imagine that tomorrow's newspaper carries the headline: "Supreme Court Declares Medicaid Unconstitutional."  After much hand wringing, Congress would almost certainly give the Medicaid funds to the states as an unrestricted cash grant and hope for the best.  We would then get 50 different experiments - almost all of which would significantly improve the current system.

Why?  Because today states only have to pay for 33 cents of every Medicaid dollar they waste, on the average.  Federal taxpayers pay the other 67 cents.  Conversely, the states get to keep only 33 cents of every dollar of waste they eliminate.

If the states had to pay the full costs of their bad decisions and if they got to reap the full benefits of their good ones, they almost certainly would make better decisions.

With this in mind, The New York Times description of a federal advisory panel's recommendations is disappointing - especially considering that this is a Republican panel appointed by an administration dedicated to consumer directed health care. Far from calling for an end to Medicaid as we know it, the panel called for enrolling the disabled in managed care, encouraging home care over nursing care, and giving the biggest subsides to those with the lowest incomes.

Reporter Robert Pear called these recommended changes "sweeping."  Perhaps inside the Beltway they will be viewed as such. For the rest of the country, they are not nearly sweeping enough.

John C. Goodman is President of the National Center for Policy Analysis.