President Bush put the health department squarely in the bull's-eye of his budget (search) proposal Monday, suggesting modest new spending at best on health insurance programs and encouraging states to find $45 billion in savings for Medicaid (search) over a decade.

Bush is proposing a tax credit of up to $3,000 that can be used to buy health insurance (search), and $195 million more for Medicare (search) to help pay the premiums for people who also are eligible for Medicaid.

Democrats, governors and interest groups protested, contending the proposals would squeeze spending in ways that could ultimately lead to fewer services and benefits.

The proposal for Medicaid, the federal-state health insurance program for the poor, posed the fiercest fight. Bush challenged governors to find $60 billion in savings over the decade. About $15 billion of that is earmarked for proposed new spending, resulting in a net savings of $45 billion.

The National Governors Association appealed to Congress to "save both the states and federal government money, as opposed to shifting costs to the states through budget cuts, caps or other mechanisms."

Other agencies of the Department of Health and Human Services received the barest of increases.

"These increases are so modest that the agencies would support less research next year than they do under the current budget," said the Association of American Universities, protesting Bush's proposed increase for the National Institutes of Health as statistically insignificant.

Given the fiscal atmosphere, "flat funding this year is a pretty good deal," said HHS budget director Kerry Weems.

HHS's entitlement programs — anyone who qualifies automatically receives them — have for months been expected to be a key source of savings.

Medicare and Medicaid are some of the biggest and fastest-growing parts of the budget. It anticipated the programs' costs keeping pace with inflation, which is about 2.1 percent a year, even though health care costs are rising much more rapidly.

The budget plan included no significant new money next year for Medicare and Medicaid over the amount required by law.

Medicare, the government's health insurance program for seniors, would receive a legally mandated 17 percent increase to $340 billion — mostly to pay for the new prescription drug benefits that begin in January. Originally priced at about $395 billion over the decade, the administration now says the new benefit will cost more than $500 billion.

Bush's budget would also cut spending by the Centers for Disease Control and Prevention by 12 percent to just over $4 billion in 2006 and trim substance abuse and mental health spending by 1.6 percent.