Medicaid is a flash point in a larger budget bill on which Republican leaders say they plan to reach agreement by year's end.
The Bush administration and the National Governors Association support changes approved last month by the House as a way to curb the explosive growth of Medicaid, which is financed jointly by the federal government and the states.
Many federal and state officials have concluded that Medicaid, which insures more than 50 million low-income people, is unsustainable in its current form. The cost shot up 54 percent in the past five years and now exceeds $300 billion a year.
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