When the U.S. Congress finally got around to addressing Medicaid reform this year, it did so through the Deficit Reduction Act. Federal lawmakers let the states know that if they wanted to cut costs, they could have some flexibility in customizing Medicaid benefits. And they wouldn't need a waiver--a simple okay from the Commission on Medicare & Medicaid Services would do.

It was just what the states said they wanted, and they got right on it. The DRA became law in February, and by May, West Virginia was one of the first states knocking on CMS's door. Governor Joe Manchin proposed restructuring his state's Medicaid benefits based on having enrollees sign a personal-responsibility contract. The plan, he has said, is a way to "help bring down program costs while helping to prevent disease."

Putting the best face on it, what West Virginia has gotten CMS approval to do is ask beneficiaries to sign an agreement to show up for doctor appointments, use emergency rooms only for emergencies and live a healthier life style. In return, the state will continue to provide them with the full package of Medicaid benefits. But if they don't sign up or if they break the deal, the state will demote them to a basic package with limited medications and services.

The contract does not apply to all Medicaid patients--seniors, pregnant women and adults with disabilities are exempt. And that's where some of the rubs in West Virginia's approach kick in. West Virginia's income-eligibility standards for adults are very strict--37 percent of poverty--with the result that three out of four Medicaid enrollees who are subject to the new system are children. So, a 7- year-old could lose diabetes care if he doesn't lose weight--if he doesn't hold out for a peach instead of a candy bar for a snack. But a child is hardly in control of his health destiny. He can't control what food is in the house or whether a parent takes him to the emergency room for basic care. It's not a bad idea to use positive incentives to encourage healthier living. Many employee health insurance programs, including some that governments offer their employees, reward healthy lifestyle changes: Lose weight, win lower co-pays. But West Virginia isn't using a carrot. It's using a stick-- and on children.

That's troubling enough, but the real problem lies in the next step: when a child is actually dropped from the full-benefit plan. The limited package denies coverage for dental, hearing and vision services and curtails the number of prescriptions that can be filled in any month. It also eliminates coverage for, among other things, nutrition education, diabetes care and mental health services--many of the services that would fall under the full array of benefits that are supposed to be provided through Medicaid's Early and Periodic, Screening, Diagnostic and Treatment program. Under EPSDT, states must ensure that all children enrolled in Medicaid receive regular check- ups--including vision, hearing and dental exams. It also requires that states provide all necessary follow-up diagnostic and treatment services. West Virginia's definition of EPSDT does not appear to include the latter.

Beyond any legal issues, the concept of making certain benefits conditional on a contractual agreement is not something that has, as yet, been tested or proven within a Medicaid program. Judith Solomon, a fellow at the Center on Budget and Policy Priorities, argues that the approach "will neither improve health behaviors nor beneficiaries' health--nor save money for states."

It won't save money, in part, because very-low-income children and their parents aren't the biggest drain on state Medicaid budgets. In West Virginia, they account for less than one-quarter of the Medicaid tab. Cindy Mann, executive director of Georgetown University's Center for Children and Families, notes that in West Virginia it takes a total of $1,500 per year to cover a child and that, thanks to the federal-state match, the state picks up only $400 of that.

It is somewhat surprising that CMS would approve a plan that flies in the face of ESPDT--especially as one of the first programs out of the box. As such, the West Virginia plan is bound to be a prototype for other states. It seems unlikely that CMS, having given West Virginia the go-ahead, could deny other states permission to try the same thing.

But whether it becomes a trend or not, the West Virginia approach seems a mean-spirited way for the states to start down the path of innovation and flexibility.