The gripping health care reform drama unfolding on Capitol Hill has a surprising ending—Medicaid dies. At least Medicaid as you have come to know it. The gasping audience, however, will be left to figure out whether it was murder or an accident.

The 1,018 page House Health Care bill being rushed through Congress authorizes putting 11-15 million more people into Medicaid. The Congressional leaders are doing this with the full knowledge that state budgets cannot even handle their share of the current obligations of the program. Congress is also taking away big chunks of state flexibility to run the giant welfare program. State officials, no doubt, will be happy to learn this.

As a result of the recent reauthorization of the popular State Children’s Health Insurance Program (SCHIP) during the first weeks of the Obama Administration, SCHIP is being turned into Medicaid. While the House leaders are pushing their $1.3 trillion extravaganza through the legislative process at breakneck speed, the Senate Finance Committee is pursuing a bizarre scheme to finance the cost of health care reform through state bonds. The House bill gives enormous new powers to control states through a Memorandum of Understanding written by the new ironically-named “Health Choices Commissioner.” There is no choice for the states—the legislation says “[t]he State shall enter into a Medicaid memorandum of understanding…” Period.

A Choice for the States. But the states have a game-breaker of a choice—they don’t have to have a Medicaid program at all. State participation is entirely a matter state choice. With Congress providing new generous benefits and subsidies, states must rethink whether to continue participation in Medicaid. The Congressional Budget Office (CBO) models whether employers and individuals will drop their existing coverage in light of the new federal benefits. Why will states not behave in the same manner, especially since the federal government is intent on running the program anyway?

Congressional leaders already suspect the Medicaid dump would occur. That is why the House includes “maintenance of effort” requirements on the states. In its letter to Congressman Rangel, Chairman of the House Ways and Means Committee, the Congressional Budget Office (CBO) advised that “…states would have to maintain their current eligibility levels for CHIP (the state Children’s Health Insurance Program) through 2013, but the program would then be terminated.”

Reversing Course. CBO gives Congress credit for $10 billion in Medicaid and CHIP savings. When the Bush Administration argued for a continuation of SCHIP rather than an expansion because the goal should be to include those children and their families as part of overall health care reform, such reasoning was dismissed. Now–surprise, surprise–Congress is agreeing with the Bush Administration and quietly surrendering the political ground it gained through the SCHIP debate.

Getting rid of Medicaid and SCHIP would save about $20 billion for California, solving its budget nightmares overnight. As an employer, it could dump high-priced state and local union employee health benefits, saving billions more.

Theoretically, the state could save about $200 billion over the next ten years simply by being freed from paying Medicare cost sharing, paying the Part D “clawback” and the state share of administrative costs. In total, states would save about $2.5 trillion, more than enough to continue to provide long-term care services if they were to choose to do so with state only funds, though nothing in federal law would require it.

End of Medicaid As We Know it? If the expansion of Medicaid eligibility and federal control occurs, Medicaid as we know it will no longer exist. Congress is unprepared for that to happen. There is no transition plan in either the House or Senate bill, even though the change in the program would affect an estimated 60 million Americans. In the House bill, expect a big migration of people with disabilities currently on Medicaid to the new national health insurance exchange and the new government run health plan that liberals insist must be in the final package. This, in turn, will increase the average subsidy currently assumed in the House legislation, which, of course, will add even more to the cost. Perhaps they thought about this when they drafted it, or perhaps not.

It may not happen overnight, but if one state drops Medicaid, another will, then a third. Then it will be a rush to the exit. Congressional liberals have played an all-or-nothing game with Medicaid for more than 40 years. They have steadfastly resisted even modest reforms to give states benefit flexibility and allow cost sharing that could have provided good basic coverage to millions of poor Americans. Now the liberals in Congress are betting the farm. They know that total federalization of the giant Medicaid program would also be a giant step to a single payer system. If that is their intent, then they should come clean about it. In that way, unsuspecting Members of Congress, as well as ordinary Americans, would get an idea of the true cost of “reform.” Time to read the bill.