By Julie Rovner

WASHINGTON, Jan 30 (Reuters Health) - The Senate Tuesday night overwhelmingly approved an amendment that would increase the federal share of Medicaid expenditures, but the amendment also included a tax change that would reduce state revenues by almost at much as the Medicaid increase, health analysts said.

The amendment to the latest version of an economic stimulus bill, approved by a vote of 62-33, would provide two years of "accelerated depreciation" for some business equipment, which would reduce federal taxes, and, in turn, state taxes as well.

Also included in the amendment was a provision that would restore federal Medicaid matching rates to their fiscal 2001 levels for the 29 states that saw their rates fall, would increase all states' federal matching rates by 1.5%, and would increase by another 1.5% the match rate for the 16 states with the highest unemployment rates. The federal government pays at least half of all Medicaid costs, and as much as 80 cents on the dollar for the poorest states, based on a complicated funding formula.

Senators from both parties said states need help meeting health care costs, particularly those whose federal payments went down because the formula that determines how much of each health care dollar is provided by the federal government and how much by each state is based on income estimates from 1997-1999, when state economies were much stronger.

The Medicaid changes "will provide immediate fiscal relief to states such as Oregon which are increasingly cash-strapped in the current recession as the demand for state social services rises but state revenues drop," said Sen. Gordon Smith (R-OR), the amendment's sponsor.

Added Senate Finance Committee Chairman Max Baucus (D-MT), the amendment's co-author, "this amendment will allow states to refrain from making those cuts to doctors, to hospitals, other providers and to Medicaid beneficiaries, and also prevent them from having to otherwise cut their budgets."

But House Republicans and the Bush administration have been adamant in their opposition to increasing federal Medicaid payments, despite the entreaties of both Republican and Democratic governors.

"We're for giving states assistance in the short run," said White House health adviser Mark McClellan at a briefing Wednesday on health elements of the stimulus package. But McClellan said the administration much prefers using a separate emergency grants program to increasing Medicaid rates directly. "That would make the money available more quickly," he said.

From Reutershealth.com