JACKSON - For House and Senate negotiators, the key to compromising on the specifics of a $5 billion-plus state budget is to reach agreement on Medicaid.

There are some key areas of disagreement on the federal-state program that provides health care for about 600,000 elderly, disabled and poor pregnant women and children.

The main disagreement has centered on a tax increase on hospitals to fund a perennial hole in the Medicaid budget.

Senate Appropriations Committee Chairman Alan Nunnelee, R-Tupelo, and Gov. Haley Barbour favor a $90 million tax increase. Nunnelee's position is contrary to the position taken by the full Senate through a vote of the chamber.

Both the full House and Senate voted essentially for no tax increase on the hospitals.

In what they say is an effort at compromise, House budget leaders said they will agree to a $53 million tax increase on hospitals.

Nunnelee has dropped to $60 million this year and $75 million the following year.

But he opposes conditions the House leaders, and in some cases both the full House and Senate, want to put on Medicaid.

Those conditions center on preventing Medicaid officials from taking steps that they say would save money.

House leaders say those steps would result in only a small savings - if any - to Medicaid while devastating health care providers, such as hospitals, in the midst of a recession that is already having stretching them them.

Unable to agree on a hospital tax, both sides at different times in the negotiations have suggested taking the issue off the table and build a budget without the tax increase.

Nunnelee and the governor also have included in their budget proposals provisions that set aside money for future budget years - $60 million in the Nunnelee proposal and $95 million in the Barbour plan.

The savings is needed, they say, to prevent large deficits in Medicaid for the budget year that begins July 1, 2010.

Without a hospital tax and with money set aside, Nunnelee's budget plan cuts most state agencies by more than 10 percent.

"We don't have $60 million to carry over," said House Appropriations Chairman Johnny Stringer, D-Montrose, adding he cannot understand Nunnelee's plan to save money for future budget years while gutting many state agencies this year.

Plus, Stringer says he believes it is against the rules to accept federal stimulus funds while at the same time essentially building a rainy day fund.

The stimulus funds are designed to help pull the country out of the current recession, not to prepare for future budget woes that could be solved if the economy improves, he says.

Nunnelee countered: "I have always been told to hope for the best but prepare for the worst."

Contact Bobby Harrison at (601) 353-3119 or Bobby.harrison@djournal.com.