Medicaid spending unsustainable

Medicaid is a huge expenditure for both the states (some states it's over 30% of their budget) and the federal government, yet little is being said on adressing this issue during the current crash of the US economy. According to this report Medicaid spending is unsustainable:

http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=3311

“This report should serve as an urgent reminder that the current path of Medicaid spending is unsustainable for both federal and state governments. We must act quickly to keep state Medicaid programs fiscally sound,” Secretary Leavitt said. “If nothing is done to rein in these costs, access to health care for the nation’s most vulnerable citizens could be threatened.”
. . . . . . .
At this rate, Medicaid growth is projected to slightly exceed growth in overall health care expenditures, which is projected by CMS actuaries and economists to increase by 6.7 percent per year over the next 10 years, or over twice the rate of general inflation. Additionally, Medicaid’s share of the Gross Domestic Product (GDP) is projected to reach about three percent in 2017. The combined share of GDP spending for Medicare and Medicaid is projected to be 6.9 percent by 2017.

Now with the contraction occuring in US GDP the percentage numbers are going to be much higher. With deflation now occurring (e.g. housing) it is unclear if there will be deflation in healthcare too (doubtful), especially if the state and federal governments are supposed to pay for it.

I will be very interested to see if state and federal governments actually try to reduce spending for Medicaid and what would they cut? The idea has been that everyone is entitled to excellent healthcare - would the government actually try to take healthcare benefits away from people? I just don't see that happening. If states aren't going to address their #1 budget item then where are they going to cut spending? Or are they instead going to raise every tax and fee they can find to make up for the shortages? Probably the latter - but how well is that really going to work? Where is the money going to come from?