Even as Washington grapples with proposals to transform Social Security, the lines have begun forming quietly on both sides of what promises to be an equally contentious policy debate--how best to deliver health care and related services to the poor.

Mike Leavitt, the newly installed secretary of Health and Human Services, recently told a House committee that the growth in Medicaid, the amalgam of programs that provides health, long-term care and other services to 50 million Americans, is "unsustainable." He noted that over the next decade "American taxpayers will spend nearly $5 trillion on Medicaid in combined state and federal spending."

In his latest budget, President Bush has proposed a series of modest reforms to make this runaway program a bit more sustainable. In general, he would rein in abusive practices that allow middle- and upper-income seniors to transfer assets to their children in order to qualify for Medicaid nursing home coverage. And he would liberate states from Medicaid's costly mandates and provide them with the necessary flexibility to supply more (and better) health coverage with fewer federal dollars.

In dollar terms, these reforms are exceedingly modest. They would pare barely 1% off projected Medicaid costs and result in a minor downward revision in Medicaid's annual rate of growth, from 7.4% to 7.2%.

Judging from the howls emanating from the governors' mansions, however, one would think the President had proposed eliminating health care for the poor entirely. Arkansas GOP Gov. Mike Huckabee, vice chairman of the National Governors' Association, complained at the NGA's annual gathering in Washington that the President's plan would have "real impact." Ohio Republican Gov. Bob Taft added ominously: "I don't think there are any divisions among governors. The real issue is it's the governors against the White House and Congress."

But things are not so simple. You find governors and members of Congress on both sides of this debate.

Congressional Democrats, for the most part, side with the governors and have rallied to protect all $5 trillion of Medicaid's projected future spending. Rep. Steny Hoyer of Maryland, a House Democratic leader, maintains the cuts Bush proposes would have "drastically negative consequences" for the poor, while Virginia Democrat Jim Moran decries the proposal as "shortsighted, selfish and irresponsible."

The pieces are in place for a visionary Congress to seize the moment and change the way low-income Americans receive their health care. What's more, leading members of Congress such as House Energy and Commerce Committee Chairman Joe Barton and Senate Budget Committee Chairman Judd Gregg are sending signals that the time is ripe for such an effort.

A reform agenda would provide:

• Refundable tax credits, so low-wage workers could purchase private health insurance.
  
  
• Marketplace reforms, such as the creation of "association health plans," that would give low-wage workers a meaningful choice of affordable private health plans.
  
  
• Increased flexibility in Medicaid that would permit states to transform state and federal Medicaid dollars into de facto vouchers. This "piggybacking" effect would add considerably to the purchasing power of the credit.

These reforms would transform Medicaid into a consumer-friendly program and allow the poor to mainstream into the same health system available to the rest of us.

Signs of Hope

The unity Senate Republicans displayed during consideration of the bankruptcy bill has raised expectations regarding Senate consideration of Social Security reform.

The reason? Senate Democrats hit their Republican colleagues with a barrage of politically explosive amendments--amendments to exempt the most sensitive categories of debtors from the reach of our bankruptcy laws, such as veterans, military widows, individuals with catastrophic medical expenses, and those who lose their jobs while caring for desperately ill family members--and all 55 Republicans held firm.

Also of interest was the total support Republican bill managers received from Nebraska Democrat Ben Nelson and the near-total support from Delaware Democrat Tom Carper. Both turn up regularly on lists of Senate Democrats who might support the President's drive to reform Social Security.

Bankruptcy reform doesn't evoke the sort of primal emotion we'll see when a Social Security reform bill reaches the Senate floor. It's significant nevertheless that Senate Republicans in recent weeks have passed two major pieces of legislation--class action reform being the other--that stalled in the last Congress.

Mr. Franc, who has held a number of positions on Capitol Hill, is vice president of Government Relations at The Heritage Foundation.

 
Mr. Franc, who has held a number of positions on Capitol Hill, is vice president of Government Relations at The Heritage Foundation.