Medicaid has become the test of how the world's richest country treats its poorest citizens. No surprise, then, that it has become one of the key sticking points in the budget donnybrook on Capitol Hill. And once again Democrats have decided to go for a tactical victory rather than the long-range strategic advantage that might actually return them to power.

Medicaid spending has grown about 55 percent over the last five years. That's a medium size-problem for the federal government, which will spend about $184 billion for Medicaid this year. For the states, however, which pay 43 percent of the tab, Medicaid has become a fiscal monster that is busting budgets and eating away at spending on everything else.

There are a lot of culprits here, among them skyrocketing health and drug costs, new technology that is keeping the disabled alive longer and a growing elderly population with no means to pay for nursing home care. But perhaps the biggest factor is that the Medicaid program increasingly is being called upon to provide coverage for Americans who have no other health insurance.

To their credit, states have not shirked from this role, which has been thrust upon them by the private sector. But in doing so, they have asked for more flexibility in making difficult tradeoffs between the comprehensiveness of services they offer and the number of families that they can cover.

To allow for such tradeoffs, state governors have asked permission to raise some co-payments to $5 from $3 and charge modest premiums and deductibles for families above the poverty line, with a cap of 5 percent of income. The idea isn't so much to raise revenue but to use a tool now widely used by private insurers to get people to consume the health care they need rather than the health care they want. In addition, having squeezed doctors and hospitals about as much as they could, the states are now asking for permission to squeeze drug companies for larger rebates and squeeze families of those nursing home patients for every last bit of grandma's assets.

To hear the howls from Democrats and advocacy groups, however, you would never know that what all this amounts to, is shaving less than 1 percent off the annual growth rate of a program that has grown at an average of 9.5 percent over the last four years.

You'd never know that most states are not expected to demand the full measure of permitted cost-sharing allowed under the proposed changes, or that it is likely to be phased in over time.

You surely would never know that preventive care and acute hospital care would be exempt from cost-sharing, as would children in poverty households or their pregnant mothers.

Most of all, you'd never know that these "cuts" are meant to make it feasible for states to continue offering some measure of health insurance to low-income children and adults who don't have it but may have incomes above the Medicaid cutoff (which varies widely from state to state).

Democrats would have you believe that the only reason for these cuts is to pay for extending tax cuts for the rich. In a narrow sense, that's true. But in another sense, it's beside the point. You could just as easily argue that the Medicaid "cuts" are needed to pay for misguided farm subsidies or spending for Star Wars or bridges to nowhere. And even if the tax cuts were off the table, we'd still face a budget crisis and the need to control Medicaid and other entitlement spending.

Although Democrats stubbornly refuse to acknowledge the political and fiscal reality that Medicaid can't keep growing faster than the incomes of the Americans who pay for it. Nor can it continue to cover every service at no cost while other Americans are being forced to accept higher cost-sharing and more limited coverage -- or have their health insurance taken away completely.

And that's why this is such a missed opportunity. Rather than falling back into the political set-piece of defending the status quo and demonizing Republicans for another round heartless budget and tax cuts, Democrats might have used the opportunity to change the terms of the debate. With the governors at their side, they could have pushed Congress to take the next step in transforming Medicaid from an entitlement program for the poor into a means-tested health insurer of last resort for all Americans.

Think of it this way: If you were a Democrat, would you want the debate focused on the fairness of requiring poor people to pay $5 instead of $3 every time they decide to go to the doctor? Or would you want to focus on the fairness of a health system that now leaves 40 million Americans with no coverage at all?

No wonder these guys keep losing elections.

Steven Pearlstein will host a Web discussion today at 11 a.m. on E-mail him at