RENEE MONTAGNE, host:

Now that he's released his proposed budget for the next year, President Bush today signs into law budget changes for the current fiscal year. That measure is expected to reduce federal red ink by an estimated 39 billion dollars over the next five years. Part of those savings will come from changes in the Medicaid health program for the poor, and that could have a bigger impact than the dollar amount suggests, as NPR's Julie Rovner reports.

JULIE ROVNER reporting:

President Bush has long favored a greater role for the private sector in health care, and a smaller one for the government. But in his State of the Union address last week, he did make this vow.

President GEORGE W. BUSH: Our government has a responsibility to provide healthcare for the poor and the elderly, and we're meeting that responsibility.

ROVNER: Ironically, one of the ways Republican lawmakers say they're meeting that responsibility is to scale back the Medicaid health program for the poor. It's now the nation's largest health insurer, with more than 50 million beneficiaries. But its rapid growth has sorely strained budgets at the state and federal levels, which share funding responsibility.

This isn't the first time Congress has scaled back Medicaid spending as part of the budget process, but Medicaid experts, like Sara Rosenbaum of the George Washington University School of Public Health, say previous bills have largely targeted states or healthcare providers.

Professor SARA ROSENBAUM (George Washington University): This is the first time in, certainly, 30 years that efforts to try and rein in Medicaid spending have been directed to beneficiaries, and the changes that are contained in this bill completely remake the Medicaid program.

ROVNER: For example, she says, under the new provisions, states would be free to redesign their benefit packages.

Professor ROSENBAUM: These changes go to the heart of what it means to be insured. They are all about allowing states to fundamentally change the meaning of coverage for around 50 million people.

ROVNER: What Rosenbaum calls the dismantling of Medicaid's benefit package is particularly ironic, because historically, the budget process has mostly been used to expand the program. New coverage for poor children and pregnant women, quality standards for nursing homes, and even the state children's health insurance program were all enacted as part of bills like the one the President will sign today.

Rosenbaum, who helped write most of those Medicaid expansions in the 1980s and 1990s, says that for children in particular, coverage has never contracted until now.

Professor ROSENBAUM: This is the first time in 40 years, that is since the progam was enacted, that we actually have policy coming out of Congress that reduces Medicaid's commitment to the poorest children.

ROVNER: And it's not just children. Low-income seniors who need nursing home care will be hurt too, says John Rother of the senior group AARP.

Mr. JOHN ROTHER (AARP Director of Policy and Strategy): They went after people who had already spent down whatever savings they had to qualify for Medicaid, and they're disallowing some of those people from getting any assistance whatsoever, because they've given money to a grandchild or are giving money to charity.

ROVNER: Rother is referring to provisions that make it harder for seniors to qualify for Medicaid nursing home care if they've disposed of assets in the previous five years.

Republican lawmakers who wrote the bill say advocates are overreacting, particularly on the changes that affect coverage for children. Charles Grassley heads the Senate Finance Committee, and led the Senate negotiations on the measure. He says the bill does only what the nation's governors asked for.

Senator CHARLES GRASSLEY (Republican, Iowa): Governors, including my own governor, said that you give us more flexibility, we can save the states money. We can save the federal government some money, and we can even serve more people.

ROVNER: But New Mexico Democratic Governor Bill Richardson says those aren't the changes he had in mind.

Governor BILL RICHARDSON (Democrat, New Mexico): These are cuts that are actually going to hurt kids and working families, people that pay their bills and deserve healthcare.

ROVNER: And the bill the president will sign today isn't the end of the cuts the Administration envisions for Medicaid. The budget unveiled Monday calls for an additional 12 billion dollars in reductions over the next five years.

Julie Rovner, NPR News, Washington.

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