THE MOST UNKINDEST CUT

By SUNEEL RATAN

Bob Dole and Newt Gingrich didn't quite expect the table to be turned. Their prey had been the President, even though they spoke in statesmanlike tones at a press conference last week. "Come to the Capitol, sit down and visit with Republicans and see if we can't work this out," said Dole in an open invitation to Clinton. Such a summit would tackle the volatile subject of Medicare. Shouldn't the President start handling the crisis? Indeed, as Dole spoke, Gingrich pointed to a precipitous slope indicating Medicare insolvency by the year 2002. And then the questions began. Why, reporters asked, didn't Dole and Gingrich do anything about Medicare in the past when the situation was equally dire? "He wasn't the majority leader, and I wasn't the Speaker," Gingrich said defensively. Would Republicans use Medicare cuts to balance the budget? Said Gingrich: "Some people in this city have a budget psychosis." Less than 15 minutes after they started, the duo fled from the Senate broadcasting studio. Said Dole dryly as he left: "We certainly welcome these questions. We didn't know we would have any."

Welcome to the second 100 Days. The confrontation was merely a taste of what Dole and Gingrich can expect as they begin the hardest part of their agenda: facing the enormous political risks involved in slashing Medicare and an array of other sacred-cow government programs to balance the budget and pay for the tax cuts Gingrich has termed the "crowning jewel" of the Contract with America. Indeed, there was cold sweat at a no-press-allowed retreat in suburban Virginia at week's end, where G.O.P. House members had to go to secure conference rooms to read numbered copies of House budget chief John Kasich's blueprint for slicing an astonishing $1.4 trillion from federal spending over the next seven years. The plan would eliminate the departments of Energy, Commerce and Education, cut cost-of-living increases for federal pensioners, slash foreign aid sharply, and zero out Clinton's pet achievement, the national-service program. Even during the retreat, House members were forming "rump groups" to contest specific cuts, particularly the farm subsidies that Kasich has slated for major reductions. The hysteria will mount this week when Senate Budget Committee Chairman Pete Domenici makes his plan public-a plan without the salve of tax cuts.

The G.O.P.'s panic contrasted markedly with the steady-handedness that characterized the new congressional majority's first 100 days. There were smiles, however, in the White House. For six months the President and his aides watched haplessly as the Republicans marched all over the political landscape. Senior Clinton adviser George Stephanopoulos, however, foresaw Democratic opportunity. Looking over the Republican agenda last fall, Stephanopoulos, economic adviser Gene Sperling and First Lady Hillary Clinton predicted that the G.O.P. would become vulnerable when the time came to make the painful choices necessary to balance the federal budget by 2002. And they laid an ambush line down at Medicare, the $176 billion health-care program for the elderly that is among the budget's most politically sensitive items.

The White House strategy has been to hope the G.O.P. would call for massive cuts in Medicare, which the Administration could then tag as an effort to balance the budget on the backs of senior citizens -- much as it scored points off earlier Republican efforts to reform the school-lunch program. In January's State of the Union speech, Clinton said he would not allow the Republicans to slash Medicare to pay for tax cuts, a line he took up again in a speech before 2,200 senior citizens attending the decennial White House Conference on Aging -- as it happened, the day after Dole and Gingrich's fiasco. "The Republicans promised they could balance the budget, cut taxes for the wealthy and leave Medicare and Social Security unharmed," Stephanopoulos told TIME. Clinton made the point more finely in his speech: "It is wrong simply to slash Medicare to pay for tax cuts for people who are well off."

That puts the G.O.P. in a major quandary. Putting a lid on Medicare and its $90 billion sister program, Medicaid, represents the Republicans' best hope for achieving much of the $1.4 trillion in savings they must find if they are to balance the budget and pay for tax cuts. But over their April recess, G.O.P. polls began showing that people are just as protective of Medicare as they are of Social Security.

By late April, Republicans had begun to settle on a strategy of avoiding talking about Medicare as a budget issue and instead offering to reform the system to save it. But they were quickly tripped up by loose talk from Gingrich. In an April 28 speech to a conservative seniors' group, Gingrich offered to put Medicare reform on a separate track from consideration of the budget-a move that left even budget wizard Kasich scratching his head over what Gingrich meant. With Social Security and interest on the debt off the table, the budget simply cannot be balanced by 2002 without major savings from Medicare and Medicaid. "We were doing fine until Newt stumbled," House Republican Conference Chairman John Boehner of Ohio told Time. "He jumped before all the rest of us were briefed and were on board with the direction we were going."

Republicans are naturally leery of touching a program that many term a third rail of U.S. politics. But the White House, by resorting to an approach that an aide described as "demagoguing" the issue, risks having to deal with G.O.P. charges that it is "taking a walk" on both Medicare's survival and balancing the budget. In fact, in his speech to the elderly last week, Clinton made clear he would continue to punt on questions of Medicare and reducing the deficit until Republicans produce their own specific plans.

Scared by pollsters into believing that Medicare cuts cannot be sold as a budget issue, Republicans and Democrats alike are evading the truth that the budget cannot be balanced unless something is done to rein in the explosive costs of the government's health programs. Left unchanged, Medicare and Medicaid are expected to grow at a rate of 10% a year over the next decade. By 2000, they will surpass Social Security as the largest category of federal spending. As for reforming Medicare by encouraging seniors to join health-maintenance organizations, even some G.O.P. budget analysts doubt the effects of such changes will kick in soon enough to help balance the budget in seven years, with or without tax cuts. But hope springs eternal. "When the public realizes and personalizes the financial situation of Medicare, they end up backing significant reform," says Republican pollster Frank Luntz.

Republicans can still hang on to a degree of public goodwill by arguing that they are preparing credible plans that just might balance the budget in the lifetime of most Americans. Administration officials acknowledge that at some point during the budget process they will have to negotiate constructively with the Republicans to avert an ugly impasse that shuts down the government. But if last week's G.O.P. disarray and partisan firefighting are any indication, the White House's Medicare ambush is the prelude to a long summer of bloody political trench warfare. --Reported by James Carney, John F. Dickerson and Karen Tumulty/Washington

With reporting by JAMES CARNEY, JOHN F. DICKERSON AND KAREN TUMULTY/WASHINGTON