Former EPA Administrator Michael Leavitt, who has been nominated to succeed outgoing Tommy Thompson as Health and Human Services secretary, may be organizing a new effort to curb the growth curve in Medicaid spending while ensuring smooth implementation of the Medicare overhaul law.

The choice of Leavitt came as a surprise to many who expected the President to replace Tommy Thompson with Mark McClellan, head of the Centers for Medicare and Medicaid Services (CMS). This move is seen by many as an effort on the part of the White House to install a very seasoned political hand at the top and to maintain a strong implementer at CMS.

Senate Democrats are already preparing for a battle. After Leavitt’s nomination, 47 Democratic senators sent a letter to President Bush drawing a clear line between Medicaid changes they would and would not accept.

Republican aides are avoiding any talk of block granting Medicaid. However, Democrats have also warned against a “capped allotment” proposal, which was advanced unsuccessfully by the administration during President Bush’s first term. That approach would have capped spending growth for parts of Medicaid. Democrats would support “structural changes that enhance state flexibility”.

Michael Leavitt explored Medicaid flexibility in a plan approved by the federal government in 2002. The “Utah waiver” expanded coverage of low-income workers by cutting benefits elsewhere in the state’s Medicaid program. Administration officials are praising the Utah plan as a way to increase access to care in tough budget times. However, advocates for the poor say the waiver took dental and vision coverage away from people whose incomes were at half the federal poverty level while imposing new co-payments that caused some Utah Medicaid beneficiaries to skip seeking medical care.

It is generally agreed that widespread adoption of the waiver approach would not by itself generate the Medicaid savings that congressional budget committees are seeking. Those kinds of numbers require approaches such as block grants or caps on per capita Medicaid spending.

It’s unclear how receptive Congress will be to cost-saving moves. The Senate Democrats said in their letter that they oppose flexibility that compromises “the health and well-being of beneficiaries.” Although, there will be fewer Senate Democrats in the 109th Congress, the Finance Committee is likely to be resistant.