U.S. states eye bill on extra healthcare funds

WASHINGTON (Reuters) - U.S. states, desperate for extra healthcare funds, are anxiously awaiting the fate of a multibillion dollar jobs bill currently in the U.S. Congress.

The $134 billion bill was introduced in the House of Representatives and Senate last week and aims to tighten tax rules and extend soon-to-expire unemployment assistance.

The legislation is important to states because it would continue to provide extra funding from the $863 billion stimulus plan passed last year for the Medicaid and Medicare healthcare programs by six months.

Leaders in the U.S. Congress had hoped to pass the bill before next week's Memorial Day holiday, but conservative Democrats and Republicans are raising concerns about the amount of spending involved.

"I'm still very optimistic it will go through this week," said Chris Whatley, Washington director of the Council of State Governments.

Whatley said more than half the states have included the Medicaid extension in their budgets for fiscal 2011, which for most starts on July 1.

Medicaid, the healthcare program for the poor, takes up a considerable share of state budgets and represents an average of 20 percent of state spending, according to Moody's Investors Services. That tends to swell during a recession, such as the one that began in 2007, because the newly unemployed enroll in the program and drive up its costs just as the income and sales taxes they pay decline.

The stimulus plan that expires in December increased the amount the U.S. government pays to states for Medicaid, with additional funds going to those with high unemployment. The current legislation would continue to fund these programs for another six months, at a cost of $24 billion.

That amount of money is significant, Whatley said, but there are many lawmakers and groups concerned about states' economies who will press to pass the measure.

John Shure, deputy director of the State Fiscal Project at think tank the Center on Budget and Policy Priorities, agreed.

Stimulus funds helped close 30 percent of state budget shortfalls last year, according to the CBPP.

While there are signs that the national economy is recovering from the longest and deepest recession since World War Two, states are still grappling with the economic downturn. The National Governors Association has called the extended period of tight spending and short revenue a "lost decade" for many states.

"The money is going to run out before the states get well so Congress has to refill the prescription," Shure said.

Congress will likely modify the bill and pass it soon, said Michael Bird, federal affairs counsel for the National Conference of State Legislatures.

"'Delayed' is the operative term," he said. "They're close."

The extension has already been attached to other pieces of legislation that have stalled or died, and was part of the budget President Barack Obama proposed earlier this year. This bill is one of the last chances for the measure to pass, Bird said.

"The thing is: how many bills are going to advance to the President's desk between now and November? Very few, I mean, very few," he said.

If the measure does not survive, states will have to have emergency legislative sessions to find more areas to slash spending. All states except Vermont must have balanced budgets.

Their budgets are already stretched with few places left to cut, mostly because the recession caused what Shure calls a "collapse" in revenue.

Without the Medicaid money, "one of the tools that states are counting on to fill their budget gaps is lost, and this is a significant tool," Bird said.

(additional reporting by Kim Dixon; Editing by Diane Craft)