Like other states, South Carolina has experienced explosive Medicaid growth. In a little more than a decade, the number of recipients has more than doubled and the total annual budget has almost tripled to more than $4 billion. Close to 1 million of our citizens will be enrolled in Medicaid within a 12-month period. That's about one-fourth of the state's total population. Medicaid pays for almost one-half of all births in the state and provides health coverage for about 40 percent of all our children.

The staff at Health and Human Services has worked diligently to maintain services and control program costs. In the five years prior to 2003, the agency growth rate averaged around 11 percent. We held growth to just under 6 percent in 2004, one of the lowest in the nation. A pharmacy growth rate of more than 20 percent has been cut in half. With the help of the attorney general's office, fraud collections have risen from an annual average of less than $1 million to $14 million in 2004. We have stabilized the budget from previous deficits, and the General Assembly has responded by replenishing a large nonrecurring funding [source].

Yet it does not seem to be enough. Despite recent level enrollment, the growth rate at the close of this fiscal year was creeping back up to the national average of 9 percent. The vast majority of this year's growth was attributable to the increased demand for services as opposed to price and enrollment pressures.

The good news is that the program is adequately funded for the current fiscal year. However, the near future appears ominous. Medicaid accounts for 19 percent of state general fund spending. Based on current estimates, it will comprise 24 percent in 2010. By 2015, that amount will rocket to almost 30 percent. It's the miracle of compounding working against us. Unfortunately, we cannot continue to sustain these projected growth trends.

You see, the delivery system used by Medicaid operates roughly under the same structure since its inception 40 years ago. It is a system without restraint that often provides too much care for some and too little for others. It has evolved into a complex morass of federal requirements that results in ridiculous requirements, such as the mandating coverage of Viagra.

The governor recognizes the imminent crisis before us and has instructed the agency to develop a plan to transform the antiquated program. The proposal, at its core, incorporates the concepts of beneficiary responsibility and ownership with effective coordination of care. Beneficiaries will be provided personal health accounts administered by the agency. Those accounts will be funded with amounts sufficient to purchase health care plan coverage from approved insurers and provider networks.

Plans will be allowed certain flexibility in their benefit design, but premiums must be actuarially equivalent to the package offering. Any excess balances in the account can be spent on noncovered medical services or potential co-payments. A limited number of adults may even be able to use the account to direct their own care when accompanied with major medical coverage.

This approach has two distinct benefits. First, it allows us to demonstrate the effectiveness of different health delivery systems. Second, with proper counseling, it allows the beneficiaries to determine for themselves the best method for receiving their health care coverage. It transforms the program from a government determined one-size-fits-all to one that is more individually tailored.

An initial waiver proposal has been submitted to the Centers for Medicare and Medicaid Services, and we are in discussion with them. We are committed to an open and deliberative process that moves us toward a final and comprehensive application. That's why we publicly released the governor's original concept paper for reform in October and we have prominently displayed our most recent waiver proposal on our Web site, where it has received extensive news coverage.

This process includes meetings with provider associations, beneficiary forums and the creation of a representative ad-hoc work group to provide consultation and advice. Because this is an evolving proposal, parts of the initial document need further clarification and certain components need reconsideration. There are certain assurances we need to provide that may not be clear. For example, services for children younger than 19 will remain as they are today. And, though their care will be administered through the approved plans, children cannot participate in the self-directed care option.

The governor and Department of Health and Human Services value your input. In the coming weeks, you are likely to hear more from critics of S.C. Medicaid's waiver request. I encourage you to listen. Listen carefully for those who offer solutions to the problem rather than just keeping the status quo. Think about their statements and underlying assumptions and weigh them carefully in terms of the value of personal choice and responsibility.

Contrary to what some might have you think, the agency did not make this request in a veiled attempt to deny needed services to Medicaid beneficiaries. We did it for just the opposite reason: to make sure this vital program for the poor and disabled can continue to offer service in the years to come.