Christmas is coming early for a few lucky states including Hawaii, Massachusetts, Nebraska and Vermont. But their good fortune will come at the expense of other states. Overall, the government health care plan is still alive and well in Majority Leader Harry Reid’s (D-NV) manager’s amendment released this  morning, hiding in the form of expanding Medicaid eligibility and inserting State Children’s Health Insurance Plan (SCHIP) rules into the Exchange.

First, the winning states. Nebraska and Hawaii are easily identifiable because the Reid amendment specifies their sweetheart deals by name. While all the other states will lose the extra federal financing for new Medicaid eligibles after 2017, full federal financing will continue for Nebraska. Hawaii gets funding for Disproportionate Share Hospital (DSH) payments that it gave up years ago to expand Medicaid eligibility. Ironically, $18.5 billion in cuts to the DSH program in all the other states help finance the rest of the health care legislation.

Massachusetts and Vermont have already expanded Medicaid eligibility so they would not have benefited from new federal financing under the original legislation. The Reid amendment provides a fix for these states. The increased federal spending will not increase insurance coverage, it will only substitute federal funds for state funds.

Who are the losers? All the other states. According to the Congressional Budget Office (CBO) analysis of the Reid Amendment, total state funding for Medicaid and SCHIP will increase by $1 billion compared to the original legislation. Clearly if total state spending goes up and spending for a few favorite states goes down, then all the other states are picking up the tab.

New federal rules will punish states that would use the flexibility of current law to increase the share paid by with local governments for Medicaid. California and New York historically have shared the cost and administration of Medicaid with counties and municipalities. States that have not done so in the past will lose federal funds if they attempt to do so now.

States seeking demonstration projects (“waivers”) may find their paths blocked by new requirements to allow outside parties review applications. Senators are apparently unsure as to how new provisions will be viewed in the light of the Medicaid entitlement so a new provision to ask the Government Accountability Office (GAO) to conduct a study on “causes of action” has been added.

The Reid Amendment also raises new requirements on health plans participating in the Exchange. Using this authority, the Secretary can block any health plan from covering children that does not meet certain benefits and cost sharing provisions. Medicaid, of course, through the Early Periodic Screening Diagnosis and Treatment (EPSDT) provisions provides the most generous benefit package available. It also includes new reporting requirements on health plans on pediatric quality measures. Herein lies the seeds of a future government plan—continued expansion of Medicaid and using Medicaid and SCHIP rules to drive private plans out of business.

Over the past few weeks, the debate on the Senate floor has reduced the health care reform debate from what the American people really want to a desperate defense along the lines, “it’s better than nothing and we will fix it later.” By pitting state against state, the Reid Amendment raises the backroom deal to an art form.