Is there a place for carrots and/or sticks in Medicaid?

Interesting piece in NYT on a West Virginia pilot program that will reward Medicaid beneficiaries who are "responsible patients" and deny some services to those who do not join weight-loss or antismoking programs, or who miss too many appointments. Snip:

Those signing and abiding by the agreement (or their children, who account for a majority of Medicaid patients here) will receive “enhanced benefits” including mental health counseling, long-term diabetes management and cardiac rehabilitation, and prescription drugs and home health visits as needed, as well as antismoking and antiobesity classes. Those who do not sign will get federally required basic services but be limited to four prescriptions a month, for example, and will not receive the other enhanced benefits.
....
No one questions that West Virginia, more than most other states, needs more healthful lifestyles and better primary and preventive care. But the new plan has stirred national debate about its fairness and medical ethics. A stinging editorial in The New England Journal of Medicine on Aug. 24 said it could punish patients for factors beyond their control, like lack of transportation; would penalize children for errors of their parents; would hold Medicaid patients to standards of compliance that are often not met by middle-class people; and would put doctors in untenable positions as enforcers.

“What if everyone at a major corporation were told they would lose benefits if they didn’t lose weight or drink less?” said a co-author of the editorial, Dr. Gene Bishop, a physician at Pennsylvania Hospital in Philadelphia.

I don't know if I like this or not. On one hand, I'm sympathetic to the NEJ's concerns about denying medical services on the basis of something that's beyond their reasonable control. On the other hand, there's John Johnson. Snip:

Speaking from the easy chair where he spends his days in a small wooden house near this small Appalachian town, his left trouser leg folded by a safety pin where a limb was lost to diabetes, he lighted another cigarette. Mr. Johnson, 61 and a former garbage collector, takes insulin and goes to a clinic once a month for diabetes checkups. Taxpayers foot the bill through Medicaid, the federal-state health coverage program for the poor. But when doctors urged him to mind his diet, “I told them I eat what I want to eat and the hell with them. I’ve been smoking for 50 years — why should I stop now?” he added for good measure. “This is supposed to be a free world.”

We're all paying for John Johnsons, both in Medicaid and in our HMOs and other insurance pools. And sure it's galling to have to pay for health services for a guy who doesn't care enough about his health to change obviously unhealthy behaviors. But I'm uncomfortable with giving the government a stick in this situation. It's not clear from the article to what extent the program involves the stick approach, but from a structural perspectice, the use of a stick requires a lot more due process protection to ensure only those who are truly stick-worthy get stuck. I'm much more comfortable with a carrot approach: if a beaurocracy makes a mistake in handing out carrots, nobody gets hurt. People might not get a carrot they're entitled to, but nobody gets hurt. And from a behavior-modification standpoint, doesn't science teach us that carrots reinforce good behavior much more effectively than sticks prevent bad behavior?