BOISE - A House committee has approved a bill calling for more than $34 million in cuts to the state Medicaid program, savings critical to helping solve the state's overall budget puzzle but also spelling the suspension or reduction in programs and treatment for the elderly and adults with severe mental illness and other disabilities.

The House Health and Welfare Committee voted 8-2 along party lines Monday, advancing the bill to the full House for debate.

The bill includes more than $4 million in funding that was restored last week after a public hearing featuring advocates and providers for programs specifically for adults with developmental disabilities.

A majority of Republicans on the committee hailed the bill as a balance between making tough but prudent funding cuts in a difficult budget climate and keeping programs vital to thousands of Medicaid recipients and providers.

"We have done our level best to try and provide and protect the services that are most important," said Ken Roberts, the House Majority Caucus leader from Donnelly. "These are not easy decisions to make, but they are necessary."

Cuts in the Medicaid budget have been viewed for months as essential to closing the projected $92 million deficit in Idaho's fiscal 2012 budget, which begins July 1. But the more than $34 million in savings targeted in the bill are just the state's portion in next year's Medicaid spending because the state cuts will trigger an estimated $73 million loss in federal matching funds. Overall, the $108 million loss represents about 8 percent of the total Medicaid budget.

Both of the committee's Democrats voted against the bill, calling it poor fiscal policy making and even more damaging to public health.

House Minority Leader John Rusche predicted the funding cuts to programs for severe and chronic mentally ill adults, for example, will cost the state money elsewhere.

He also said agencies that serve Medicaid clients will suffer the financial hit and be forced to dump staff or simply shut down, resulting in the loss of 1,000 jobs or more in cities and small towns in every corner of the state.

"I think this is still a bad decision financially and clinically," said Rusche, of Lewiston. "With the level of state mental health services we've seen in the last few years, we'll have increased use in the county hospital services and corrections" system.

Still, Republicans won praise from some Medicaid providers for last week's decision to restore more than $4.4 million in funding for two programs serving adults with developmental disabilities. During a public hearing, providers urged lawmakers to put back money for treatment of adults with autism, severe brain trauma or other developmental disabilities and to strike a proposed cap on those services for clients older than 45.

"There are still some things about this bill that are gravely concerning," said Jim Baugh, executive director of Disability Rights Idaho. "But the committee did respond, and fixed the most potentially harmful aspects of the bill. We're ecstatically happy about that."

Still of concern among providers and Democrats are cuts to psychosocial rehab programs that cater to adults diagnosed - or previously hospitalized - with chronic or severe mental illness. The budget cuts PSR treatment from 5 hours per week to 4, a rollback that may seem small but could mean a big difference in the lives of those clients, Baugh and others said.

Other proposed changes include ending mandatory rate hikes for Medicaid providers, cuts in chiropractic, dental and vision care for some adults and eliminating fees charged by providers for coordinating care and services with a client's doctors, employers and teachers.

The bill also authorizes the Department of Health and Welfare to study and develop a blueprint to shift away from fee-for-service system to one overseen by a managed care contractor and hire up to eight new employees to crack down on Medicaid fraud.

The bill includes a new payment method to reimburse small pharmacists at a higher rate to better compete with large, corporate pharmacies and changes to implement co-pays for a variety of Medicaid services.