The proposal is only the first step in a long budget process, but should the General Assembly grant Sanford his wish, it would be the first time in at least a decade that the state didn't rely on temporary fixes to avoid cuts in the health insurance program for the poor.

"The practice of closing budget gaps in this critical agency with nonrecurring funds must end," Sanford said in his proposal.

Health care advocates are happy with the idea and gave the governor credit Friday for proposing a solution that corrects what they have long viewed as a big problem.

That said, these same people still believe that the best way to take care of Medicaid budgeting shortfalls is with an increase in the 7 cents a pack cigarette tax.

"No legislature can bind future legislatures," said Ken Shull, chief executive of the South Carolina Hospital Association. "They can still come back and cut at a later date. A named (funding) source, like the cigarette tax, would be a little more secure."

Medicaid has become the primary payer of health care for roughly 20 percent of the state's population. As of July 1, there were 937,000 state residents enrolled in the program.

The program covers about half of all births and insures 40 percent of children and a third of the state's seniors. It also pays for three-fourths of the state's nursing-home beds.

Medicaid costs $3.8 billion to administer in this state. About 70 percent of that is federal money. The state's current contribution eats up about 10 percent of the state's $5.2 billion General Fund, a figure that would rise to about 14 percent under the 2004-05 budget proposed by Sanford.

These costs have increased sharply over the past several years largely because of increases in enrollment and health care inflation. Six years ago, for example, the program cost about $2.5 billion.

The increases have presented an especially acute problem in recent years because the state's revenues have stagnated.

Not wanting to cut the program but being unwilling to increase taxes, legislators repeatedly have relied on transitory funding schemes to keep Medicaid afloat and secure matching federal dollars.

Reliance on that one-time money means the program has to go begging for more money every year on top of increases in its costs.

"It seems like this huge expense comes out of nowhere when it's really an accounting issue," said Frank Adams, spokesman for the Department of Health and Human Services, the state's Medicaid agency.

In response, a broad coalition of what is now more than 100 business groups and health care advocates has for the past couple of years proposed raising the state's cigarette tax to as much as 53 cents a pack, with the revenues dedicated to Medicaid.

Sanford backs an increase in the cigarette tax, but the budget proposal he unveiled Thursday does not include any such provision, although the governor did indicate he would push for such a tax along with a corresponding reduction in the state's income tax.

Efforts in previous years to raise the tax failed. Last year, the General Assembly also failed to come to agreement on an effort to reform the Medicaid program and control its rising costs. The program faced an estimated $180 million shortfall but was saved at the last minute with a $200 million federal bailout that helped the state maintain Medicaid.

But that was a one-time fix, too.

Now, Sanford's proposal to add $140 million to the program would bring the state's base contribution to $689.5 million, an increase of 25 percent from the current fiscal year.

Will Folks, a spokesman for the governor, said Sanford proposed setting aside the additional funds for Medicaid despite a $350 million budget shortfall. The governor's spending blueprint includes a variety of funding cuts and moves to streamline government that would allow for the increase and deliver a balanced budget.

"Health care is clearly one of the governor's priorities in the budget," Folks said.

Sue Berkowitz, director of the S.C. Appleseed Legal Justice Center in Columbia, an advocacy group, wonders whether the additional $140 million will be sufficient to maintain the program. "I'm grateful that he's willing to put more recurring dollars in there," she said. "My concern is that it's not enough."

Sanford's proposal also comes with some effort to make cost-saving changes in Medicaid and the agency that runs the program.

Sanford proposes merging the Department of Health and Human Services with the much smaller Department of Alcohol and Other Drug Abuse Services and renaming it the Department of Health Oversight and Finance.

His budget also notes that the department is working on several initiatives to control Medicaid costs over the long term by increasing efficiency and improving people's health. This includes tighter eligibility controls and efforts to control drug costs, as well as directing more recipients to primary care doctors who catch health problems before they become serious.

There's also an emphasis in Sanford's proposal on disease management for Medicaid recipients with chronic problems such as diabetes or asthma. Adams said the agency is working on a plan to accomplish that goal.

Such an emphasis could lower costs while improving the health of those recipients, and the idea was well received among health care advocates. "In those kinds of cases, good care and efficiency go hand in hand," Shull said. "It's better health. That's a good philosophy."

Shull was less enthusiastic about a Sanford proposal to impose co-payments for Medicaid patients who visit a doctor's office or are hospitalized. There is a federal limit of $3 on doctor visit co-payments, and a $25 limit on co-pays for an inpatient hospital stay. For now, South Carolina residents on Medicaid do not pay any co-pay.

Shull worries that co-payments may not always get paid, increasing the uncollectible debt on hospitals' books.

What Sanford's proposal will look like once it gets through the General Assembly remains to be seen. The legislative session begins next week.

Charleston Republican Rep. Bobby Harrell, chairman of the House Ways and Means Committee, believes a difficult budget fight lies ahead.

Still, Harrell believes the Republican Legislature might help the governor get a good shot at passing his proposal this year, especially because Sanford's budget is balanced and the Department of Health and Human Services has focused on cutting costs.

Harrell said legislators will try to give Sanford his increase in Medicaid funds. "If we can do that, that's exactly what we'll do," Harrell said. "It's the right thing to do."

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