The idea of states dropping out of Medicaid is now being discussed in polite society. A few believe, mistakenly, that entirely state-run and -financed programs can save money in this area and still provide adequate access to care. Others are motivated by the impulse to play politics with health care and bog down President Barack Obama's agenda.

The real reason for these conversations, though, has little to do with political gamesmanship and everything to do with stark reality: state lawmakers from both parties are staring into the abyss of massive state budget deficits. California will have to fill a hole of as much as $28 billion over the next 18 months, roughly equal to the entire amount of money the state spends on health care and higher education combined.

There are extraordinarily strong reasons, of course, not to dismantle state Medicaid programs, and any attempt to do so to any significant degree would meet with a firestorm of opposition from health care advocates and industry stakeholders. Doctors and hospitals claim, correctly, that they are underpaid by Medicaid in most states. But $1 trillion – the amount that a flawed Heritage Foundation reports the states could save by opting out of the program – is not such a small amount of money that they wouldn't miss it.

It is hard to imagine most nursing homes, community clinics and rural hospitals, in particular, surviving without Medicaid. Since a large and growing chunk of the work force in most states is employed in the health care industry, further cuts would have a devastating effect on state economies at the exact moment they are struggling to emerge from an economic downturn.

Most critically, reducing state health care spending would have real human consequences to those in need, vastly increasing mortality and morbidity primarily among children, seniors and people with disabilities who account for more than 80 percent of program costs.

There are equally compelling arguments, however, not to eliminate state support for higher education or against releasing tens of thousands of prisoners. Yet, this is the scope of choices that states face. What state lawmakers need are not arguments but answers, real solutions they can use to start bridging their budget gaps.

A good start would be allowing the federal estate tax cut to expire as planned on Jan. 1. If this tax cut is extended, it would cost California an additional $2.7 billion, according to the state's Legislative Analyst's Office, since California and many other states levy a "pick-up tax" that allows them to capture a significant chunk of this revenue.

Another important step would be increasing the leeway given to states in the waivers that they negotiate with the federal government that allow them to innovate to bring down costs while preserving quality. Democratic Sen. Ron Wyden of Oregon has partnered with Republican Sen. Scott Brown of Massachusetts to advance a proposal that would give states additional flexibility even on some of the major provisions of the bill such as the requirement to have heath coverage. California recently renegotiated its uninsured and hospital financing waiver which it tellingly called a "Bridge to (Health Care) Reform."

This waiver included some very good provisions designed to encourage the integration of care provided to the seniors and people with disabilities who are responsible for the majority of the program spending. It is just the beginning of a process, however, and other states will need flexibility to modify their own Medicaid programs in ways that account for their unique demographics and delivery systems.

Ultimately, though, these improved efficiencies will net at most hundreds of millions, not billions, of dollars. So both states and the federal government are going to have to get real about the fact that fulfilling our obligation to provide for those in need is going to require restoring revenues. During the booms that preceded the Great Recession, governments across the nation cut taxes while increasing spending. State governments have now slashed spending significantly over the past few years. It is time to address the other side of the equation.

We were told that the results of the midterm elections were a vote for "fiscal sanity" by the American people. The crisis in the states means that we can no longer live in denial that just one more massive tax cut will put us on the path to recovery, that we can ignore our obligations to those in need without real human – and economic – consequences. Though there is no better time for sane behavior, whether we will actually witness any in Washington or in the statehouses across the country remains to be seen.