A federal advisory panel says that long-term care for aging baby boomers threatens to bankrupt Medicaid, and it recommends sweeping changes to rein in costs, including greater use of managed care for the sickest Medicaid recipients.

The proposals set up a likely clash between the new Democratic Congress and the Bush administration, which has sent strong signals that it will seek big savings in Medicaid next year. 

Panel members adopted the recommendations last week, by a vote of 11 to 1, and are drafting a report to be submitted next month to Michael O. Leavitt, the secretary of health and human services. Mr. Leavitt created the panel in May 2005 and is receptive to many of its proposals.

The panel, known as the Medicaid Commission, said states should have more freedom to alter benefits and eligibility for the program, which serves more than 50 million low-income people.

Moreover, it said states should be allowed to enroll some of the sickest Medicaid recipients, including nursing home residents and people with disabilities, in managed care plans. 

The panel said such plans “would provide a medical home and better coordinated care” for people entitled to both Medicaid and Medicare. Care is often fragmented now because Medicaid pays nursing homes while Medicare is the primary payer for doctors and hospitals, and in many cases “clinical data is not shared,” the panel said.

People enrolled simultaneously in the two programs account for 13 percent of Medicaid recipients, but more than 40 percent of Medicaid costs. Medicaid, which is financed jointly by the federal government and the states, covers two-thirds of the nation’s 1.6 million nursing home residents. 

“The anticipated costs for long-term care services in this country threaten the future sustainability of the Medicaid program,” the panel warned. It recommended that the federal government and the states provide new tax incentives for people to buy private insurance covering the costs of long-term care, so they would not rely so much on Medicaid.

“Public policy should promote individual responsibility and planning for long-term care needs,” said the panel, led by former Gov. Don Sundquist of Tennessee, a Republican.

More generally, the panel said states should be free “to consolidate or redefine eligibility categories” and should be given “greater flexibility to design Medicaid benefit packages.”

The proposals drew a swift negative response from Democrats who will be responsible for Medicaid in the new Congress. Representative John D. Dingell of Michigan, who is in line to become chairman of the Energy and Commerce Committee, dismissed the panel as “a hand-picked commission stacked against working families.”

Senator Max Baucus of Montana, the Democrat in line to lead the Finance Committee, said many of the proposals would make it more difficult for “the most vulnerable Americans” to get comprehensive care.

John C. Rother, policy director of AARP, the lobby for older Americans, said, “In some states, flexibility means cutting benefits.”

But Christina Pearson, a spokeswoman for Secretary Leavitt, said, “He definitely supports more flexibility for states to meet the needs of different population groups.”

Grace-Marie Turner, a commission member, said, “People who rely on both Medicaid and Medicare are the most vulnerable beneficiaries, but in most cases, nobody is coordinating their care.” Even if a state wants to place them in managed care, it may take months or years to get federal approval, said Mrs. Turner, who is president of the Galen Institute, a research center focusing on health policy. 

The commission said states should be able to place all types of Medicaid recipients in managed care without getting “a waiver or any other form of federal approval.” But, it said, individuals should be able to “opt out” of managed care.

Gwendolyn G. Gillenwater, a commission member who is policy director of the American Association of People With Disabilities, an advocacy group, voted against the report.

“People with disabilities have not had good experience with managed care,” Ms. Gillenwater said. “We need federal protections and safeguards. People with disabilities should at least have a choice of two managed care plans. And what are your choices if you opt out of managed care? The alternatives are getting more and more limited.”

The panel said Congress should rewrite the Medicaid law to encourage the use of home care and community services, instead of nursing homes and other institutions. 

In an interview, Angus King, the former Maine governor who is the panel’s vice chairman, said: “We need to reverse Medicaid’s institutional bias. Community care — that’s what people want. It’s better for beneficiaries. And it’s less expensive.”

The panel urged the Bush administration to study a novel idea: increasing federal subsidies for low-income groups added to the Medicaid rolls, while scaling back subsidies for higher-income people added to the program. The panel said this would help achieve “Medicaid’s core purpose,” serving low-income people.