Federalism's Shifting Balance

'THE new federalism'' was a favored phrase during Ronald Reagan's presidency, but it's actually being engineered in the age of Bill Clinton. And, ironically, the fulcrum is Medicaid, which Mr. Clinton has threatened to veto. The program to provide health care for the poor accounts for some 40 percent of the money Washington sends to the states. In recent years, states have strained to maintain their 50 percent of the cost of the program. Medicaid accounted for 19.4 percent of state spending in 1994, alm ost double its share in 1987.

As with Medicare, which serves elderly Americans, a consensus exists that Medicaid must be reformed to bring costs under control. The congressional tack here, unlike that on Medicare, is conversion of the program's entitlement status to one of block grants. All 50 states will get a set amount of money from the federal government, based on a complicated formula derived from past Medicaid spending, probable population growth, and a number of other factors.

The formula almost proved the undoing of Medicaid reform. Many governors, including the Republican chief executives of New York and other Northeastern states, are still unhappy with Congress's work. They see their cut of federal money decreasing in coming years while their health care bill for the poor mounts.

The dilemma facing states is how they'll respond to growing or fluctuating health care demands, when people without private insurance encounter recessions and layoffs. Democratic critics of GOP-designed reforms expect states to let programs sink into neglect, especially in such areas as nursing-home care, currently a substantial part of Medicaid coverage.

Governors, generally, reject that pessimism. But they face demands on their ingenuity as federal funding shrinks. Their states are about to shoulder a social responsibility that federal tax revenues have largely hefted for the past 30 years. The standards and expectations developed during that time will now be a goal for each state to meet or improve with varied programs to match local needs.

Washington has failed to keep costs under control. State officials will soon have an opportunity to prove they can do so without a decline in care.