THE PRESIDENT’S SPENDING PLAN : Curbs Sought on Growing Medicare Bill : Health: Bush calls for reducing payments to hospitals and doctors. But Congress is expected to oppose the cutback.

The Bush Administration, in a move certain to draw congressional fire, Monday proposed cutting back payments to hospitals and doctors for treating the elderly. The proposal is an attempt to curb the soaring growth of Medicare costs, which could surpass outlays for defense or Social Security within 20 years.

The budget asks no changes in benefits or taxes for Social Security, which congressional Democrats have targeted for a substantial tax cut. Instead, the Administration said the government should maintain current tax levels but gradually stop relying on the mounting Social Security surplus to offset the deficit in the rest of the budget, beginning in 1993.

With defense outlays expected to remain largely stable for the indefinite future, the two key programs for older Americans, Medicare and Social Security, will become the biggest sources of government spending.

The cost of health care for the elderly has thus far defied government efforts to contain it. It rose at twice the general rate of price increases throughout the 1980s, despite a variety of cuts and freezes Congress imposed on Medicare, which serves 30 million persons over 65 and 3 million disabled persons of all ages.

The new budget calls for defense outlays of $303 billion, Social Security spending of $264 billion and Medicare outlays of $98 billion.

If current spending patterns hold, however, government projections show that Medicare will become the most costly program of all in the year 2010--with estimated outlays of $739 billion, compared with $736 billion for Social Security, and a comparatively modest $400 billion for defense.

The proposed budget issued Monday calls for cutting the Medicare inflation rate in half, saving an estimated $5.5 billion next year, largely from reducing the growth in payments to hospitals and doctors for treating Medicare patients. Hospitals would also receive less money for construction projects and teaching programs.

None of the cuts would have a direct and immediate financial impact on Medicare beneficiaries.

But the plan will face strong opposition in Congress, which reluctantly trimmed nearly $3 billion from Medicare last year, and is not in a mood to cut more.

Even before the budget was announced, a group of 27 Republican senators sent the President a letter opposing cuts in Medicare.

Many hospitals are under tough financial pressures because of Medicare’s increasing stringency and are coming close to jeopardizing high-quality care, warned Dr. Dennis O’Leary, president of the Joint Commission on Accreditation of Health Care Organizations, which reviews hospital standards.

The Administration hopes to raise $2 billion in new revenues for Medicare by requiring all state and local government employees to pay the Medicare payroll tax, an idea previously offered by the Ronald Reagan Administration and rebuffed by Congress. Most government workers already pay the taxes, but significant numbers of employees in Massachusetts, Illinois and Texas are not covered.

The Administration says it will also encourage Medicare beneficiaries to join “managed care” programs, such as health maintenance organizations, in a further effort to control costs. About 1 million Medicare beneficiaries already belong to HMOs, which provide medical care for a fixed monthly fee instead of levying separate charges for each office visit or medical procedure.

The Administration will increase payments to HMOs, enabling those who join to save $5 a month from current rates.

The government also is developing a “Medicare Plus” plan to identify groups of doctors and hospitals offering high quality benefits in addition to the basic coverage provided by Medicare. Millions of persons now buy so-called “medi-gap” insurance, to help fill the gaps in Medicare protection, which help pay hospital and doctor bills. The new program would give a federal seal of approval for medi-gap plans that meet stringent standards.

The new budget attempts to defuse the controversy over the Social Security surplus by establishing a special fund to reduce the federal debt. Surplus Social Security tax revenues are now lent to the Treasury, which uses the money to cover some of the government’s operating costs and thus reduce the reported overall government deficit.

Starting in 1993, Bush’s new budget proposes to gradually stop using Social Security surpluses to reduce the overall deficit.