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They would only be able to buy medical care with it, like food stamps not buying aluminum foil. But okay, I guess we could just route it through 18 levels of bureaucracy and make it better.

Huh? You're the one adding the extra layer, by having the check sent to the recipient before they pay the provider. The number of layers required to cut a check to a hospital are the same as the number of layers required to cut a check to the recipient.

In Michigan the Medical Services Administration spends $43 million per year (mostly Federal) to run a $6 billion Medicaid program. That's an administrative cost of less than 1%, far better than that achieved by most private insurers (to be fair, that's because Medicaid is a much larger payer and there are economies of scale). The same is true in other states. Administration isn't the problem.

That $43m does not count all of the bureaucrats, including at the hospitals themselves. That sounds like it would be the central office. Although its much better than most states I am sure.... did Michigan have an actual fiscal conservative as a Governor a few terms back?

In Texas, the "food stamps" have been replaced by the Lone Star card - a debit card that's funded by the State. I think it's great because it made all the grocery stores spend their money to put in the machines so I can use my own (privately funded by my husband) card.
I do believe that government funded medical care should be paid this way and that there should be more means testing. (Never forget that Warren Buffet is Medicare-eligible.)