BACKGROUND: Medicaid is the federal program which provides health care for the poor, elderly and disabled, including one-fourth of all American children. It is part of a massive "reconciliation" bill that includes Medicare and Social Security. Reformers propose that Medicaid -- currently a guaranteed form of federal assistance -- be transferred to the states in the form of block grants in a new "MediGrant" program. (Block grants, a favorite tool of the new Republican leadership, gives states wide discretion over how to spend federal money.) The federal and state governments, who share Medicaid costs, spent $155 billion on the program last year for 32 million Americans. The House and Senate bills would slow the growth of Medicare spending, and abolish several federal regulations, including nursing-home standards. It would also allow states to get tougher in collecting payments from the spouses and adult children of nursing-home residents. The House and Senate propose to save $182 billion from Medicaid as part of their drive to balance the federal budget by 2002.

STATUS: The House Commerce Committee passed its Medicaid plan on Sept. 23 by a vote of 27-18. The Senate Committee on Finance passed the reconciliation bill, which includes sweeping changes in Medicare, on the night of Sept. 30, 11-9.

KEY PLAYERS: Rep. Bliley is the chairman of the House Commerce Committee. Rep. Henry A. Waxman (D-CA) helped to design the program, and was a vocal opponent to the committee's decision. Sen. William S. Cohen (R-ME) leads the moderates in the Senate. Sen. William V. Roth Jr. (R-DE) is the chair of the Senate Finance Committee.

PRO: The country cannot afford to allow Medicaid spending to increase unchecked. Slowing Medicaid growth is necessary to save money, but turning it over to the states will cut bureaucratic waste and allow states to better tailor the program to their citizens' needs.

"Double-digit growth in Medicaid cannot be sustained ... The governors told us that if we got rid of mandates they could live within budget caps. I have to believe that governors and state legislatures are just as concerned about the poor as we are." -- Rep. Thomas J. Bliley Jr. (R-VA)

CON: Once again the Republicans are financing their tax cuts on the backs of the poor and needy. The Medicaid cut is more than $60 less than the tax reduction Congress has planned. In addition, as with welfare, turning Medicare over to the states with few restrictions could have the effect of leaving many in need with no coverage at all: the states are not obliged to continue the program, and it could be an early source of revenue in times of tight state budgets.

"[Medicaid] is a lifeline, literally, for millions of children and families ... Ripping apart this lifeline is not the American way." -- First Lady Hillary Rodham Clinton

WHAT'S NEXT: The full House must still vote on Medicaid and other elements of the reconciliation bill, including Medicare. The House Ways and Means Committee is expected to vote on the House version the week of Oct. 9. The Senate bill goes to the full chamber for a vote (and probable easy passage), then to conference once the full House has passed its version. After the conference the final bill will go to the President. But Clinton has threatened that elements of the reconciliation bill -- including the Medicare cuts -- will force him to veto it. Moderate Senators may try to soften the Senate bill by retaining some federal standards the states must observe.

INSIDE SCOOP: Like many others in this Congress, this debate has focused on whether states can be trusted to maintain an important federal program without leaving the needy out in the cold. Republicans charged that federal regulations were so unreasonable that caring for five particular people in California cost the state almost $30 million.