IN 1965, the Medicaid program was created to provide health coverage to a limited number of low-income and disabled people. Distinct from the similarly-named Medicare program, Medicaid is funded jointly by the federal government and individual states. Over the next four decades, the desire to supply health insurance to the needy turned into one of the nation’s most costly programs. Without systemic reform, it may bankrupt Rhode Island.

Like many social-welfare programs, Rhode Island’s Medicaid system has evolved over the years, expanding beyond the traditional role of a safety net to become the principal source of health coverage and services for more than 200,000 Rhode Islanders, one-fifth of the state’s population. Along the way, the Medicaid program has transformed from a payer for services into the chief financier of the long-term care industry.

In the 40 years since it was first established, Medicaid has become less about the quality of care and the individuals it is designed to protect, and more about the cost of that care. The first and foremost purpose of Medicaid should be to provide the highest quality of care and services to individuals who cannot afford it and the state’s most vulnerable, not to line the pockets of health-care providers.

Rhode Island and the nation are on the precipice of a full-blown recession. Rhode Island is already feeling the pressures of the economic downward spiral, with increasing unemployment and decreasing general revenues. The single largest piece of the state’s budget is health and human services, and the simplest way to balance the budget would be to cut programs and reduce eligibility. That may save a few dollars in the short run, but it does not address the problems that only systemic change can achieve.

Medicaid forecasts show that even a quick economic recovery will not reverse current trends. By 2011, total Medicaid expenditures will make up about 30 percent of the state’s overall budget, and could consume as much as 50 cents or more of each dollar of general revenues. Some forecasts show that by 2050, Medicaid will exceed the state’s budget.

At issue for the state is the financing of Medicaid and the growing gap between general revenues and Medicaid operating expenditures. Fiscal pressures, service demand and institutional bias have colluded to push Rhode Island further down the path toward comprehensive Medicaid reform. No longer can the state cut programs to balance the budget. Funding cuts will inevitably harm the individuals Medicaid was designed to protect. The need for reform is real.

The Rhode Island Global Consumer Choice Compact Waiver, crafted by the Executive Office of Health and Human Services and the Department of Human Services, is real reform and establishes the basis for fiscal solvency and sustainability. The waiver would establish a new state-federal compact that provides the state with greater flexibility while assuring federal funding certainty.

The three major tenets of Medicaid reform include rebalancing the way long term care is provided, imple- menting a managed-care system across all Medicaid populations, and completing the transition from payer of bills to organizer and purchaser of services for all Medicaid consumers.

Rebalancing the provision of long-term care to emphasize home and community-based settings such as shared living, assisted living and at-home care, where possible, will enable consumers to maintain a family or community-based lifestyle. Under the global waiver, decisions on the type of service and the setting for those services will be determined in consultation with the consumer and the family, as well as on the assessment of the level of care needed.

One of the central goals of the waiver is to reorient the Medicaid program to reward responsible personal choices, including prevention and wellness. A person-centered system provides comprehensive primary care that facilitates partnerships between beneficiaries, physicians, other health-care professionals and community providers and, when appropriate, the beneficiary’s family. Further, the waiver will implement care- management instruments across populations, increasing the opportunity for more efficient monitoring of access and quality, greater use and efficacy of performance-based payment incentives.

Ensuring that every beneficiary has access to the right services in the right setting requires that the state change the way services are organized and purchased. This will require the centralization of certain programmatic functions (in-take, assessment and referral), the reconfiguration of others and the integration of others. Not only must every Medicaid dollar the state spends achieve the best health outcome, but any dollars saved from implementing a fair-share approach must be reinvested in the program. Additionally, the model of “smart” payments and purchasing must be expanded so that increased competition can yield not only the best value but also improved capacity and performance.

The state cannot do this alone. It is critical for all stakeholders to be at the reform table. Engagement and partnership with service providers, health plans, consumers, state agencies, legislative leaders and the federal government will be necessary to achieve this challenge. The alternative is to accept the only other choice: Reduce Medicaid expenditures by cutting eligibility and services.

Rhode Island is taking the lead in Medicaid reform. Any risk that represents is less of a risk than keeping the status quo. The Rhode Island Global Consumer Choice Compact Waiver will ensure the long-term viability of Medicaid, create program integrity and financial stability, protect the individuals it serves and create a stronger, more responsive system.

Gary Alexander is director of the Rhode Island Department of Human Services.