The only speaker standing between state budget officers and the opening cocktail hour at a Washington conference was the U.S. Secretary of Health and Human Services. What he said left no one in a celebratory mood.

Medicaid costs, said then-Secretary Michael Leavitt, were projected to grow so fast that within 10 years they would “crowd out virtually every other category of spending.” State spending on higher education, infrastructure and safety, he predicted, would all get squeezed.

Nearly...