ALBANY – An upstate lawmaker who has been leading an effort to cut health-care costs in New York warned yesterday that the state faces a grave fiscal crisis if President Bush turns his attention from the Social Security system to Medicaid.

Senator Raymond Meier, Republican of Utica, said recent changes in South Carolina and Florida to the joint federal and state medical entitlement program for the poor and disabled could presage similar changes at the federal level that would have immense implications for New York.

Mr. Meier and other state lawmakers recently agreed on a $106.6 billion spending plan for the state this year, which included $45 billion in Medicaid spending alone. The nation’s two most populous states, California and Texas, spend less on the program – combined.

The federal government, which pays half of New York’s Medicaid costs, is pressuring the state to cut expenditures. It recently offered to provide a $1.5 billion waiver to cover the cost of modernizing health-care equipment and closing health-care facilities that have a large number of empty beds.

Political pressure from health-care unions and a reluctance among politicians to trim benefits have resulted, however, in a tendency of lawmakers to squabble over shaving 1% from the budget for Medicaid instead of looking for ways to make fundamental changes.

Mr. Meier said the current situation is likely to change only if the federal government implements the same kind of limits on its Medicaid disbursements as it did on welfare disbursements in the mid-1990s. That kind of reform could be on the way for Medicaid, Mr. Meier said.

“One hint at where the president’s mind-set is to look at the state that is taking the lead on market-driven health care, not just for people who are working but also for the Medicaid population,” Mr. Meier said. “It’s Florida. And the governor of Florida is the brother of the president, and I suspect they talk.”

The setting in which Mr. Meier shared similar views yesterday about a looming Medicaid crisis in the state indicated how pressing the issue has become for lawmakers on both sides of Albany’s political divide. Dozens of industry lobbyists crowded a large parlor near the offices of the Democratic-led state Assembly to hear ideas on Medicaid from scholars at two prominent think tanks associated with the promotion of free-market principles.

The two-hour event was sponsored by the newly formed Empire Center for New York State Policy, an Albany-based project of the Manhattan Institute directed by a tax scholar and budget hawk, E.J. McMahon. Joining Mr. McMahon at the forum were Regina Herzlinger, a senior fellow at the Manhattan Institute, and Scott Gottlieb, a fellow at the American Enterprise Institute.

“It’s not often you have conservative groups like the American Enterprise Institute and the Manhattan Institute doing something like this in Albany,” Mr. Meier said. “Most of the time when people hear anything about market-based health-care policy, they think, ‘Oh, that’s a bunch of conservatives.’ But remember what happened to welfare reform. That issue was always associated with conservatives too, but then you got Newt Gingrich and President Clinton coming to a consensus on it. In my view, Medicaid is something where you might get a similar consensus, based not on political party but on reality.”

The presentation by Ms. Herzlinger, who is also a prominent professor of business administration at Harvard Business School, was aimed at demonstrating the potential benefits in cost and quality to health care of introducing innovation and choice. She said the current system, in which governments dictate health coverage, has resulted in a situation where the fastest-growing segment of uninsured Americans is made up of high-income earners.

“Rich people cannot afford health insurance,” Ms. Herzlinger said. “That’s how expensive it is. You earn $75,000. After taxes, you take home $37,000. Are you going to spend $15,000 of that on health insurance? You’re not going to do it. That’s what we have: high costs, unknown quality, and no information. That’s why we have this tragedy of the uninsured.”

According to Ms. Herzlinger, fundamental changes in the delivery of health care are required for costs to come down. She pointed to the automobile industry, in which she said prices have gone down and quality has gone up as a result of choice and competition. She said competition among health-insurance products would likewise lead to greater productivity.

“The way to fix health care is to let the Henry Fords loose,” Ms. Herzlinger said. “Let the Alfred Sloans loose. Let’s have a lot of choice. We have 240 models of automobiles. We have 195,000 book titles. We have 9 million blogs. And we have one choice of insurance policy. Hello? And people wonder why on earth health-care costs are so high.”

Mr. Meier, who is chairman of the Senate’s Committee on Social Services and Children and Families, endorsed the consumer-driven model outlined by Ms. Herzlinger but said he was not confident that fundamental changes to the current system could be made unless the federal government suddenly pulls the rug out from under the state.

“The thought among a lot of people is that when the federal government starts looking at other entitlement programs and started looking at Medicaid, welfare reform could serve as the model,” Mr. Meier said. “They could say they gave New York $20 billion last year and that’s what the state is going to get from now on. If the federal government ever does that, New York is going to have to make some very dramatic decisions, because the program would literally become unsustainable at that point.”