Gov. Haley Barbour says federal Hurricane Katrina recovery money will help cover a Mississippi Medicaid shortfall the next few months, and he is suspending his plan that has been taxing hospitals to plug part of the $90 million budget hole.

In a letter Monday to Lt. Gov. Amy Tuck and House Speaker Billy McCoy, Barbour said the newly identified Katrina money will keep Medicaid on track until lawmakers can act on the agency’s budget in the 2007 session, which starts in January.

Changes in federal rules require that Mississippi come up with $90 million to ensure hospitals don’t lose $270 million in federal Medicaid money this year. Barbour’s solution was to tax hospitals, which the state began doing in September.

Barbour’s decision to levy the $45 million tax drew criticism from both lawmakers and hospital administrators. Last month, the Mississippi Hospital Association filed a lawsuit against Barbour and the Division of Medicaid, asking the tax be declared unconstitutional.

McCoy, D-Rienzi, said he had not received a copy of the letter Monday, but lawmakers are “appreciative of anything that can be done to solve this dilemma, other than just tap the general fund” of the state budget.

Tuck did not immediately return a call seeking comment.

“The Mississippi Hospital Association is pleased that Gov. Barbour has decided to let the Legislature decide this issue,” said spokeswoman Shawn Zehnder Lea. A hearing set for Tuesday on the association’s lawsuit was canceled after MHA received word of Barbour’s new plan, Lea said.

Medicaid helps pay for health care for the needy, aged, blind and disabled, and for low-income families with children. It serves about 748,000 underprivileged Mississippians, roughly one-quarter of the state’s population.

Barbour said Medicaid was recently notified by the Centers for Medicare and Medicaid Services about a national redistribution of Katrina grant funds that would provide an additional $149 million to Mississippi. He said the money became available because some other states apparently overestimated how much they’d need for Katrina recovery.

Barbour said he would use $45 million of the money to fund Medicaid for the rest of fiscal year 2007, which ends June 30, instead of asking lawmakers to make a deficit appropriation.

“This will allow the Legislature time to address the $90 million funding shortfall Medicaid will face on a recurring, annual basis by either accepting the Division of Medicaid’s proposed solution or developing a new one,” Barbour wrote.

McCoy said he would meet with House Medicaid Chairman Leonard Morris, D-Batesville, House Public Health Chairman Steve Holland, D-Plantersville, and House Appropriations Chairman Johnny Stringer, D-Montrose, to determine how best to proceed.

The tax plan would allow Medicaid to levy a tax on the gross revenue of the state’s hospitals. The plan would generate money needed to sustain half of the state match for federal funds. Barbour suspended the plan until April 1, 2007.

McCoy said most House members were opposed to Barbour’s hospital tax.

“One can call it an assessment or fee or whatever you want to call it, but it’s a dadgum tax on people who are sick in the bed,” McCoy said.

Because Mississippi is a poor state, it has one of the most generous federal contribution rates for Medicaid. For every $1 Mississippi puts into Medicaid, the federal government puts in almost $3.

Because of the federal match, a $90 million shortfall in state funding translates into a loss of $270 million in federal money — $360 million total.

Lea said the Mississippi Hospital Association would work with lawmakers and Barbour during the 2007 session to “explore long-term funding methods for the viability” of the Medicaid program.