Medicaid, the state-federal health program that also pays for nearly half of all long-term care services for the frail elderly and younger people with disabilities, is in big trouble. A deep ongoing budget crisis in most states as well as the likely end of special economic stimulus payments could lead to both long-term care service cuts and reduced payments to the nursing homes and home health agencies that provide this assistance.

And this squeeze may only be just beginning. Faced with an historic deficit, the federal government could opt to reduce its future Medicaid payments, forcing states to choose between cuts in acute care for young families or long-term care. This tenuous future is why the U.S. must begin to consider broad-based insurance to finance long-term care.

The Medicaid long-term care benefit is a critical safety net for the frail elderly and others with disabilities. Many recipients are once middle-class people who went broke paying for their own medical and personal care. Now, without financial resources, they must turn to Medicaid.

For those who cannot afford the nearly $80,000-a-year price tag for nursing facility care or the $20 an hour tab for home health aides, Medicaid is often the only option. Currently Medicaid spends more than $100 billion, or one-third of its total budget, on long-term care services. It is by far the biggest payer of long-term nursing facility and home health services. By contrast, private long-term care insurance pays less than 10 percent of these expenses. Medicare only pays for nursing care for a limited period after a patient has been discharged from the hospital.

But the Medicaid safety net is fraying. Facing their own massive budget shortfalls, states have already begun trimming benefits, many occurring in Medicaid’s home and community based programs. That’s because states are required to provide assistance in a nursing facility, but not at home. Thus, states cut where they can, even though beneficiaries prefer home care and some research suggests the states themselves can save money by helping Medicaid long-term care recipients stay in the community.

Until now, those benefit cuts have been relatively modest. The Kaiser Family Foundation estimates that 18 states reduced long-term care benefits in 2010 and another 10 plan to do so this year while more than 30 expanded their programs. The main reason: The huge 2009 economic stimulus included $87 billion in additional federal Medicaid payments to states through December 2010. In August, Congress reluctantly added another $16 billion and extended the additional payments through June 2011. (KHN is a program of the foundation.)

But that money is about to dry up. With Republicans winning control of the House and picking up seats in the Senate, and with worries about the federal deficit growing, there is little chance Congress will provide any additional Medicaid dollars.

The long-run future is even dicier. To start, the new health law will add an estimated 16 million more acute care patients to the Medicaid rolls starting in 2014. Congress promised to pick up most of the cost of those added beneficiaries, though the federal payment will slowly decline. If states pay more for those acute care patients, the extra dollars must come from somewhere. And one possibility is Medicaid funding for long-term care.

The real risk to states, however, is that Washington will fail to keep its commitment. Given the growing fiscal crunch, I’d worry about that promise if I were a governor.

Some conservative lawmakers in Texas and elsewhere have floated the idea of pulling out of Medicaid entirely. But since a state can’t withdraw from only part of Medicaid, this decision would leave long-term care beneficiaries with no safety net at all.

While states can’t change the rules, Congress can. Already, influential deficit hawks are suggesting how that might happen.

For instance, the co-chairs of President Obama’s fiscal commission, former Clinton Administration chief of staff Erskine Bowles and former Sen. Alan Simpson, R-Wyo., have proposed capping the federal share of Medicaid long-term care costs — a step that could reduce federal payments by nearly $90 billion over 10 years.

A second deficit commission would go much further. The privately-funded Bipartisan Policy Center’s panel suggested major changes in Medicaid long-term care assistance. The most far-reaching suggests states and Congress fundamentally renegotiate their Medicaid responsibilities. For instance, one level of government could take full responsibility for all long-term care while the other handles al acute care.

These proposals won’t become law any time soon. But they are evidence that Medicaid could be on the fiscal chopping block. In that environment, it makes sense to get the program out of the long-term care business. And a way to do that would be to replace it with a broad-based insurance system. The Community Living Assistance Services and Support Act, which was created by the health overhaul, will create a voluntary national long-term care insurance program. Program participants would begin contributing in 2012, but wouldn’t b eligible for benefits for at least five years. But there are real doubts about whether CLASS insurance will attract enough middle-class buyers to reduce the burden on Medicaid. If it can’t, Congress should begin to think about what insurance design can, and do so before the Medicaid safety net for long-term care is in tatters.