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By Robert Pear
February 2, 2007

Washington, D.C. — President Bush will ask Congress in his budget next week to squeeze more than $70 billion of savings from Medicare and Medicaid over the next five years, administration officials and health care lobbyists said Thursday.

The proposals, part of a White House plan to balance the budget by 2012, set the stage for a battle with Congress over entitlement spending. Even some administration officials say they cannot imagine approval of such large cutbacks in a Congress now controlled by Democrats.

Mr. Bush is also expected to propose changes in the Children’s Health Insurance Program to sharpen its focus on low-income families. The changes could reduce federal payments to states that cover children with family incomes exceeding twice the poverty level. Under federal guidelines, a family of four is considered poor if its annual income is less than $20,650.

The child health proposal, like those for Medicare and Medicaid, is likely to touch off a fight on Capitol Hill. Senator Hillary Rodham Clinton of New York and other Democrats are seeking major expansions of the children’s health program, though they have not said how they would pay for the changes.

One measure of the political difficulty facing the president’s plan for Medicare and Medicaid is that he sought $20 billion less in savings from the two programs last year, when Republicans controlled Congress, and few of those proposals were adopted.

Representative Charles B. Rangel, the New York Democrat who heads the House Ways and Means Committee, said Thursday: “There is a large area for potential compromise and agreement, but with these latest Medicare proposals, the president is just asking for controversy. He still acts as if Republicans were in complete control and Democrats had lost the election.”

Mr. Bush has repeatedly said that Medicare has serious long-term financial problems, and many experts share his concern.

“If you want to balance the budget eventually and you do not want tax increases,” said Joseph R. Antos, an economist at the American Enterprise Institute, “you have no choice but to propose substantial reductions in Medicare. The president’s budget is an opening bid, the start of negotiations with Democrats over health care and other programs.”

Taken together, Medicare and Medicaid cover more than one in four Americans. Federal spending for the two programs totaled $554 billion last year, or about 21 percent of all federal spending — a little more than Social Security. With no change in existing law, spending on the two health programs is expected to rise at a brisk pace, averaging more than 7 percent a year in the next decade.

Representative Jim McCrery of Louisiana, the senior Republican on the Ways and Means Committee, said: “The current rate of growth in Medicare, fueled by rising health costs and an aging population, is unsustainable. If Congress does not undertake sensible reforms soon, the system will be swamped as the baby boom generation begins to retire. Taxes will rise, benefits will be cut, and the entire economy will suffer.”

Under the president’s plan, some Medicare beneficiaries would shoulder added costs. At present, about 4 percent of the 43 million beneficiaries must pay more than the standard monthly premium — it is $93.50 this year — because they have high incomes: more than $80,000 for individuals and $160,000 for married couples. The president’s budget would require more people to pay the higher premiums, but administration officials would not immediately provide details.

Most of the proposed savings, however, would come from health care providers. Mr. Bush is expected to propose freezing Medicare payments to home health agencies and reducing the inflation allowance paid to hospitals, nursing homes and other providers.

Hospitals plan to fight the president with lobbying and advertising. “Two-thirds of hospitals already lose money treating Medicare beneficiaries,” said Richard J. Pollack, executive vice president of the American Hospital Association.

The president’s budget also assumes that Medicare payments to doctors will be cut at least 8 percent next year, as provided under a formula in existing law.

Administration officials said Mr. Bush would not try to curb payments to private managed care plans, which currently enroll more than eight million Medicare beneficiaries. But many Democrats in Congress want to do so, because, they maintain, Medicare overpays the plans, which they see as a step toward privatizing the program.

Insurance companies are mobilizing beneficiaries to lobby against any cuts in Medicare payments to private plans. Mohit M. Ghose, a spokesman for America’s Health Insurance Plans, a trade group, said, “Any cuts would take away benefits from millions of low- income people and members of minority groups, who enroll in private plans because they cannot afford the high out-of-pocket costs in the traditional Medicare program.”

Budget Asks Rise in Pell Grants

The president’s budget will propose raising the maximum Pell grant — the federal grant for low- and middle-income students to attend college — to $4,600, Education Secretary Margaret Spellings announced Thursday.

The announcement followed by only a day the Democratic-controlled House’s passage of a $260 increase in the current maximum grant, to $4,310, under a catchall spending bill needed to address budget matters remaining from last year.

Ms. Spellings’s announcement suggests that the administration will try to emphasize access to education, an issue that Democrats have seized upon as the cost and debt burden of higher education continue to rise. Democrats have already proposed legislation in the Senate that, exceeding the administration’s plan, calls for an increase to $5,100.

The last substantial increase was in 2001.