Feb. 7 (Bloomberg) -- President George W. Bush's biggest budget fight with Congress in this election year is likely to come over spending on Medicare and other entitlement programs, as lawmakers in both parties signal resistance to his proposals.

The $2.77 trillion budget Bush proposed yesterday for fiscal 2007 calls for slowing the growth of entitlement spending by $65 billion over five years. Most of that -- $36 billion -- would come from Medicare, the government health-insurance program that covers 43.7 million of the elderly and disabled in the U.S.

Republicans, who narrowly control both the House and Senate, face the daunting task of winning Democratic support for the plan. No House Democrats supported the last round of budget reductions, including more modest Medicare cuts, and 13 Republicans broke ranks to vote against the measure.

``Congress just finished reducing the growth of Medicare and Medicaid by $11.1 billion over the next five years, and it wasn't an easy legislative accomplishment,'' said Senator Charles Grassley, the Iowa Republican who's chairman of the Finance Committee. ``Any more reductions of a significant scope could be difficult this year.''

Bush is looking for savings to curb a deficit that his budget projects will rise to a record $423 billion this year, driven by costs for the Iraq war and Hurricane Katrina. Last year's deficit was $319 billion, and Bush has vowed to cut it to $260.5 billion by 2009.

Other Cuts

While the Medicare reductions are among the most politically charged that Congress will weigh, Bush's budget also proposes cuts in other programs that have vocal constituencies. Those include trimming agriculture support by 11 percent, or $2.2 billion, and reducing the Department of Education's budget to $54.4 billion from $57.6 billion, giving that department its smallest budget since 2003.

Bush also wants to save $16.7 billion over five years by making changes to the Pension Benefit Guaranty Corp., including increasing the premiums companies pay to the quasi-governmental agency that insures defined-benefit pensions to 34.6 million U.S. workers.

In addition, the administration is calling for Congress to end or reduce 141 federal programs that the administration deems ineffective or outdated for a savings of almost $15 billion. Congress rejected cutting many of those programs last year.

Spending on entitlement programs such as Medicare and Social Security increases every year with inflation and is consuming a larger share of the federal budget, especially as the population ages. The Congressional Budget Office estimates spending on entitlements will grow to 62 percent of spending in 2015 from about 56 percent last year.

Growth Rate

Bush's plan would slow the growth of Medicare spending to about 7.5 percent a year from about 7.8 percent annually. The practice effect of slower growth means cuts in some areas.

``Arbitrary caps on Medicare will mean that providers or beneficiaries will have to make up the difference through lower payment rates or higher cost sharing,'' said William Novelli, the chief executive of AARP, the Washington-based lobbying group for people 50 and older.

The savings in Medicare, which the budget says will pay out $449.2 million in benefits in the fiscal year beginning Oct. 1, would come in part from lowering payments for medical services and equipment and raising premiums for retirees who have incomes of more than $80,000 annually.

Limits and Payments

Under Bush's plan, Medicare would limit rental periods for oxygen equipment to 13 months and pay for short-term use of power wheelchairs instead of paying the full purchase price up front. Bush also proposes to limit some payments for hospice and ambulance services.

White House Budget Director Joshua Bolten said the most important element is changing the formula that Medicare uses for built-in payment increases for providers to account for inflation and higher costs.

The budget is going to Congress against the backdrop of November elections that will decide every seat in the House and one-third of those in the Senate. Republicans hold a 231 to 201 edge over Democrats in the House and a 55 to 44 majority in the Senate. Each chamber has one independent, and there are two vacancies in the House.

``It is going to be difficult for Congress on a one-party basis to make any changes to Medicare to that degree,'' said Rick May, a lobbyist with the Washington law firm of Brownstein, Hyatt and Farber and a former Republican staff director of the House Budget Committee. ``There's going to have to be a bipartisan interest in this, and the chances of bipartisan interest are slim to none.''

Welcoming Reductions

Some lawmakers who are staking out positions in support of spending restraint welcomed Bush's proposals.

Republican Senator Judd Gregg of New Hampshire, who successfully fought for the last round of budget cuts, said the plan can win support in the Budget Committee he chairs.

``The president has challenged the Congress and basically said let's institute fiscal discipline,'' said Gregg, who doesn't face re-election until 2010. ``We've proved it can be done.''

Senator Kent Conrad, the highest-ranking Democrat on the Budget Committee, didn't rule out backing another round of Medicare cuts this year.

``There are places where we could save money in Medicare, not just this year but in the years ahead,'' said Conrad, of North Dakota.

Conrad, who faces a re-election race this year in a predominantly Republican state, said he supports a number of changes, including allowing Medicare to negotiate lower prices with drugmakers.

Battle Lines Drawn

Lobbying and advocacy groups are drawing battle lines. Novelli, whose group was instrumental in sinking Bush's Social Security overhaul proposal last year, said the president's budget threatens to create a ``crisis'' in health care by boosting the cost to beneficiaries.

Jonathan Blum, director of the Medicaid practice at Washington-based consulting firm Avalere Health LLC, said lawmakers won't want to risk incurring the wrath of hospitals and doctors. During an election ``the trend is to give providers more rather than less,'' he said.

``There is a hospital in virtually every congressional district,'' Blum said. ``The people who serve on hospital boards tend to be leading citizens, and they are very influential with members of Congress.''

To contact the reporters on this story: Catherine Dodge in Washington at cdodge@bloomberg.net; Kerry Young in Washington at kdooley@bloomberg.net

Last Updated: February 7, 2006 00:06 EST