HARRISBURG -- Under the $24.3 billion state budget, signed by the governor yesterday, the medical assistance program that provides health care for 1.8 million poor and elderly Pennsylvanians was able to avert the most serious of the benefits cuts proposed earlier this year.

Even so, Medicaid recipients will still see reductions to services and benefits of $240 million.

In a session that ended at 2 yesterday morning, lawmakers also approved other key budget proposals made by the governor -- $91 million in job preparation funding, a spending plan for $625 million in environmental borrowing, and a first step toward a new public school funding formula that sets a minimum per-student spending goal for all districts.

As a thank-you -- but not as a direct quid pro quo, he says -- Democratic Gov. Ed Rendell offered endorsement of a legislative pay-raise bill. Lawmakers approved that bill, as well, boosting their own salaries by a minimum of 16 percent, and also bumping the salaries of executive branch secretaries and judges across the state. Nearly 1,500 state employees are in line for the raise, which will eventually cost more than $20 million in direct salary compensation, plus millions more in pension contributions.

Salary hike aside, the Medicaid cuts were the most controversial element of the 2005-06 state budget, which did not include a tax increase. Rendell proposed $383 million in Medicaid benefits cuts, plus millions more by making administrative cutbacks, cracking down on Medicaid fraud and creating a preferred drug list, which negotiates lower medicine prices with pharmaceutical companies. The cuts were necessary, he said, because of reduced federal contributions and spiraling medical costs, especially for the elderly.

Some of the proposed benefits cuts -- like limits on ambulance trips, hospital admissions, and limits on the number of prescriptions that will be covered -- were restored in the final budget, through negotiations with the Republican-controlled Legislature and because of better-than-expected revenue receipts next year. The final menu of cuts and benefits was negotiated behind closed doors.

The restorations, Rendell said, total $143 million.

But the remaining cuts will still affect hundreds of thousands of the state's poor. Still in place are increased co-payments for Medicaid recipients who need transportation, new premiums that will be paid by families whose disabled children are enrolled in Medicaid, higher co-payments for certain services, and a 18-per-year limit for most patients on trips to the doctor, dentist, optometrist and other specialists. The limits do not apply to children and pregnant women.

The governor and the Legislature wrestled with the cuts for days and nights, and the Medicaid revision plan was one of the primary reasons that the adoption of the budget came a week after the July 1 deadline. Though there are $240 million in savings realized through benefits cuts, the state's portion of the Department of Welfare budget still grew from $7.9 billion to $8.6 billion.

"I want you to understand just how difficult this was," Rendell said. "Our welfare spending, which is mostly Medicaid, is going to increase 8.7 percent." The rest of the budget, except for the Department of Education, sees a 2 percent decrease, Rendell said.

He was pleased that the state didn't boot people off of the Medicaid rolls, which other states have done. In Tennessee, for example, the state has had to dump many of its poor from the Tenncare roster. Missouri planned to cut 20,000 people from its Medicaid program.

But despite the benefits cuts made in Pennsylvania's Medicaid program -- which is jointly funded by the state and U.S. governments -- the program could threaten future budgets, not just in the long term, but in the short term. These cuts may do little more than delay the inevitable, barring an upswing in the U.S. economy or a slowdown in medical cost increases.

Mike Blackwood, chief executive officer for the Pittsburgh-based Gateway Health Plan, said Medicaid expenses are a "looming problem," and expressed doubts that it can continue without more limits on services.

"We're trying to give everybody everything and there just isn't enough money to pay for it."

Blackwood said the "most egregious" of the proposed cuts were eliminated in the budget. Managed care plans also received a 2 percent increase.

With the other budget changes, the increase to managed care plans will amount to about 3 percent, he said, but that is still about 3 percent less than the usual increase. "We're taking a major haircut in this," he said, noting that Gateway will receive about $27 million less than usual.

While Gateway will continue to honor current contracts with health-care providers, rate increases will be difficult to avoid when contracts are renewed, he said. While the Medicaid cuts drew the most attention in this year's budget, Rendell has been trying to promote happier news -- the education portion of the spending plan. The Department of Education's budget will grow by about 4 percent, thanks in large part to new investments in his "Job Ready Pennsylvania" program.

That program increases spending at the state's 14 community colleges -- including the Community College of Allegheny County, the Community College of Beaver County, Westmoreland County Community College and Butler County Community College -- by 10 percent. That's the largest increase to community colleges in 15 years. The "Job Ready" program also expands tutoring and allows high-school seniors to earn college credits through a "dual enrollment" program.

Also, the state's Head Start program for preschool children will cover an additional 2,500 pupils. Basic education subsidies for public schools increased by about 3 percent.

The University of Pittsburgh, one of several state-related universities, gets a $3.8 million increase. Penn State gets a $6 million increase.