I notice people who talk about states's rights and small government can shelve both concepts when convenient.
Just because the states did reserve the power to regulate matters of public health doesn't mean I agree with everything they do in that realm, and I object to the idea of my state paying for sex change operations even if I acknowledge they have the power to do it.
I am sure you are a proponent of gay marriage however, and do not feel the states have the right to regulate this area. I find it ironic that probably most states have sodomy laws on their books, but now cannot deny a marriage license to gay men - just how are they going to "consummate" their "marriage?" It has always been the realm of the states to regulate matters of public health, and they only need to pass a rational basis test in order to do so. Denying marriage licenses to gay men who can reasonably be expected to violate sodomy laws therefore has a rational basis. And sodomy laws have a rational connection to public health in view of SSDs and other health related issues connected with sodomy.
Medicaid already covers braces for people under the age of 21. So I'd assume you'd support doing away with this benefit.
I assume you are talking about orthodontics - which I believe doctors may feel are sometimes medically necessary. Thumb-sucking children can deform their palate which can adversely affect their ability to chew their food for the rest of their lives, and is more than just a cosmetic thing. But for the state to pay for orthodontics to correct two crooked teeth is objectionable to me. But you are right, they retained power unto themselves for matters of governing public health, so it is allowable for them to pay for it if they wish.