"This dual eligible population really should be a federal responsibility rather than a state responsibility," Ray Scheppach, executive director of the National Governors Association, told assembled academics, state and federal officials, and representatives of health provider, insurance, and consumer groups at the annual Princeton Conference here.

"We cut a deal with the federal government some time ago," he said. "The federal government will take care of those over age 65 (through Medicare) and we'll take care of those under 65" through Medicaid.

But since the twin health programs were created in 1965, Medicaid has become the fallback safety net for services Medicare does not cover - notably prescription drugs and long-term care in a nursing home. Medicare will take over drug coverage for the "dually eligible" population starting in 2006, but states will be required to return most of the savings to Washington. 

"We've been waiting a long time for the federal government to take over the drug costs for the dual population. We just never thought we'd have to pay for it," Scheppach said.

There is good policy reason for such a change, Scheppach said, including the fact that the 6 million "duals" are not evenly distributed among the states. "These people tend to retire to Arizona or Florida," putting an unfair burden on those states' Medicaid programs, he said. 

But such a change will not come anytime soon, said Dean Rosen, health policy aide to Senate Majority Leader Bill Frist, R-Tenn. "It would probably be the right thing from a policy perspective, but the dollars are a huge issue," he said, referring to the fact that the federal government would be taking on huge new costs at a time of burgeoning budget deficits.

Rosen said there would also be fights over the distributional impact of such a policy. "Some states would be huge winners, others not so much," he said.

But the U.S. will have to come to grips with who should pay the cost of long-term care in particular soon, warned Marc Gold of the Texas Department of Aging and Disability, as the baby boomers near old-age and the ravages of dementia and other ailments that will require custodial care. "The good news is we're living longer," he said. "The bad news is we won't remember."