In 1996, the United States Congress passed landmark welfare reform legislation, making it the most sweeping entitlement overhaul this country has ever seen. Today, nearly ten years after Congress’ bold action, the lessons of welfare reform should serve as the blueprint for reforming Medicaid, an even bigger entitlement program threatening state budgets across the country.

As Medicaid celebrates its 40th birthday, it has become a government leviathan, devouring state budgets and leaving taxpayers bracing for the future. Although eligibility was originally limited to those qualifying for welfare’s cash assistance, the Medicaid program has grown to encompass a growing number of people and services.

The results of that growth are staggering.

It took Texas 20 years to reach $2 billion in annual Medicaid spending, yet program growth since 1987 has driven Medicaid spending skyward with $37 billion approved for the 2006-07 budget. Ever-increasing eligibility and services have fueled caseload and budget growth.

State data shows the Texas Medicaid population has tripled in a decade, adding more than 1 million people to the rolls between 1990 and 1995 alone.

Today, approximately one in nine Texans receive Medicaid benefits; that’s 2.6 million recipients out of 22.1 million Texans. With the Medicaid rolls expected to top 3 million people in 2006, the ratios will only get worse.

In the late ‘80s and early ‘90s the trends looked similar for welfare. Swelling welfare rolls had caused generations of families to be trapped in the web of government assistance. States began looking for greater flexibility in managing their programs and pressing for ways to address the obvious cycle of welfare dependence.

Reformers ultimately tackled the most fundamental aspects of the program, moving welfare from an entitlement program to one of reciprocal obligation, and by freeing the states to manage programs better suited to their needs. Today, benefits are time-limited and contingent upon meeting work requirements. These reforms reestablished the notion of welfare as a temporary program aiding families when they need a safety net; more importantly, the reforms emphasized that work – not welfare – is the way of life.

Now, states are desperate for Medicaid reform to control costs and rid the program of rigid federal requirements. The path for achieving these reforms is clear: end the entitlement and give states greater flexibility.

Welfare reform changed the way federal funding came to the state by giving the state a fixed amount of money to run their program, and providing bonuses to states achieving high performance. Medicaid reform should take the same approach by prioritizing spending, and establishing broad goals for performance. States must have significant authority to tailor the program to fit their needs, and wide latitude to better align Medicaid with other government assistance programs. This includes the ability to make benefits contingent upon meeting requirements similar to other welfare programs.

What’s more, Medicaid must be a program with reciprocal obligation. Medicaid recipients should share in the cost of their care by paying meaningful monthly premiums and copayments. Since 1982, copayments have been limited to a nominal amount of no more than $3, in most cases. This nominal copayment is merely an option in a meager cost-sharing arrangement since it cannot be collected on certain services, or from certain people, nor can services be denied for refusal to pay.

Although median family income today tops $43,000 and a stamp costs 37 cents, Medicaid’s copayments are effectively frozen in 1982 – when median family income was just over $20,000 and a stamp was 20 cents.

Cost sharing must reflect today’s world and as Medicaid recipients move up the income ladder or receive services outside a traditional health benefit, they should assume an increasing share of the cost.

Many of Medicaid’s fiercest advocates are already objecting to suggested reforms that would control spending, taking particular exception to increased cost sharing. Such a position defies reality and reason.

Welfare reform successfully restored the idea that government assistance doesn’t come free or without obligation; a concept most Americans understand whether they are working for a paycheck or paying for a doctor visit.

Medicaid reform must tackle the entitlement and provide states the flexibility they need while giving recipients greater responsibility over their lives.

Mary Katherine Stout is the health care policy analyst at the Texas Public Policy Foundation, an Austin-based research institute.