Michael Leavitt (search), President Bush's choice to be secretary of Health and Human Services (search), may have to cut billions of dollars from the government's mammoth health programs for the elderly, poor and disabled to pare the budget deficit.

The Medicare (search) and Medicaid (search) programs, consuming nearly $500 billion a year and growing quickly, could be vulnerable in the context of last year's $413 billion budget deficit, the ongoing war in Iraq, costly domestic security commitments and administration plans to revamp Social Security (search) without raising taxes.

Bush selected Leavitt, the Environmental Protection Agency chief, on Monday, filling one of the last two openings in his second-term Cabinet. Bush praised Leavitt as a "fine executive" and "a man of great compassion ... an ideal choice to lead one of the largest departments of the United States government."

Leavitt, Utah's governor for 11 years before joining the administration in late 2003, would succeed Tommy Thompson if confirmed by the Senate.

Before becoming governor, he was chief operating officer of the Leavitt Group, a family insurance firm in which he maintains an investment worth between $5 million and $25 million, according to a financial disclosure report he filed in 2003.

The company owns 100 independent insurance agencies that sell supplemental Medicare policies, among other insurance products, according to company literature.

The Medigap policies account for less than 1 percent of company revenues, said Dane Leavitt, the president and CEO. He is Michael Leavitt's brother.

"I have never had a discussion with him on any of those topics and I don't anticipate having one," Dane Leavitt said.

Michael Leavitt also has small stakes in pharmaceutical makers Johnson & Johnson and Merck & Co., and in medical equipment maker Medtronic Inc. Each investment was worth less than $15,000, according to the 2003 disclosure.

White House spokesman Trent Duffy said, "We're confident that Gov. Leavitt will take the necessary steps to avoid any conflicts of interest."

Meanwhile, John Walters, the national drug policy director, plans to stay in his post, White House officials said.

Bush still must name a new head of the Homeland Security Department to take the place of Bernard Kerik (search), who abruptly withdrew Friday night, citing immigration problems with a family housekeeper.

"He himself said he should have brought it to our attention sooner," said White House spokesman Scott McClellan. "Commissioner Kerik pointed out that this was a mistake."

After failing to disclose the nanny problem during an initial screening, Kerik acknowledged it during a subsequent vetting phase as he filled out a clearance form, McClellan said.

Among the names mentioned as possible candidates for the post are Asa Hutchinson, the department's undersecretary for transportation and border security; White House homeland security adviser Fran Townsend; White House deputy chief of staff for operations Joseph Hagin, and Robert Bonner, commissioner of U.S. Customs and Border Protection.

Potential successors to Leavitt at EPA include Idaho Gov. Dirk Kempthorne, who was a leading candidate before Leavitt's appointment; Douglas H. Benevento, executive director of the Colorado Department of Public Health and Environment; David Struhs, head of the Florida Department of Environmental Protection under Gov. Jeb Bush, and a brother-in-law to Bush's chief of staff, Andrew Card, and Barry McBee, former chairman of the Texas Natural Resource Conservation Commission.

At Monday's White House announcement, Leavitt, 53, thanked Bush for showing confidence in him, though he also said, "I feel a real sense of understandable regret" about leaving EPA.

He said the Department of Health and Human Services plays a vital part in the lives of every American.

"I look forward ... to the implementation of the Medicare prescription drug program in 2006, medical liability reform and finding ways to reduce the cost of health care," Leavitt said.

Leavitt also has experience with the Medicaid program from his time as Utah governor. The Bush administration granted Utah a rules waiver that Leavitt said Monday resulted in health insurance for thousands of working families. Critics have said the waivers have produced minimal increases in Medicaid enrollment, but have cut benefits and increased costs to others who receive Medicaid.

The HHS secretary also oversees the Food and Drug Administration, the Centers for Disease Control and Prevention, the National Institutes of Health and the Indian Health Service. In all, the agency has a budget of more than $500 billion and 67,000 employees.

If Congress undertakes serious budget cutting next year, Medicare and Medicaid would be unlikely to escape, senior Republican congressional aides said last week.

Ron Pollack, executive director of the consumer group Families USA and an administration critic, said the costs of Bush's second-term agenda coupled with his opposition to tax increases "points to Medicaid potentially taking a very large hit."

Dr. Mark McClellan, the administrator of the Centers for Medicare and Medicaid Services, had been a leading candidate for the HHS job. He is the brother of the White House spokesman.

But Mark McClellan is overseeing the new Medicare prescription drug benefit (search), which takes full effect in 2006, and Bush was said to have been reluctant to take him from his post.

Leavitt shares Bush's enthusiasm for market-based approaches to fixing problems. Former HHS Secretary Donna Shalala, a Democrat, called him "a very skillful administrator and manager."

Leavit, a Mormon and father of five, moved to Washington in the past year with his wife, Jacalyn, and a son who is in high school.