Experts said Thursday that the failure, which allows up to $2.7 billion in unspent federal aid to states to revert back to the US treasury, could result in hundreds of thousands of low-income children losing government health coverage.

The money was sent to states to help pay for the State Children's Health Insurance Program (SCHIP), a program that covers approximately 4 million US children.

Republicans and Democrats in the Senate had reached an agreement earlier in the week on a plan to prevent money from 20 states from returning to Washington. The agreement would have restored some $1.2 billion in funds that expired on September 30 of this year and restored another $1.5 billion due to expire later this year.

But the plan was blocked as the Senate approached its final hours of business for the year on Wednesday.

The move was apparently undertaken at the request of House GOP leaders, who earlier prevented a similar bipartisan measure from passing because it exceeded the House budget resolution, said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a liberal policy group.

Greenstein and Edwin Park, a health policy analyst at the center, estimated that the lost money could force states to drop as many as 900,000 children from insurance rolls over the next several years.

It outraged Senate Democrats, who accused a handful of Senate Republicans of stopping the measure despite the support of most lawmakers of both parties.

"It is unfathomable to me that anyone would object to states having the necessary funds to offer affordable health coverage for our children," said Sen. John D. Rockefeller (D-W.Va), the outgoing chairman of the Senate Finance health subcommittee, which oversees SCHIP.

Rep. James Nussle (R-Iowa), who chairs the House Budget Committee, prevented the measures from reaching consideration earlier this week because it would have exceeded the fiscal 2003 budget resolution.

"He blocked it because he was enforcing the budget. He has no problem with the SCHIP program," said committee spokesperson Brenna Hapes.

Twenty states have already lost money due to the reversions, though most would not have been able to spend it anyway. Most of the states did not have spending high enough to use the money, while others could not come up with enough of their own money to match the federal payments, Park said.

But five states--Alaska, Arizona, Maryland, New Jersey, and Rhode Island--are facing budget shortfalls this year that will be worsened significantly without the money, he said.

Senate lawmakers vowed to press for passage of the extensions when the 108th Congress convenes in January. Several are also planning to push for longer-term measures that would reform the way the federal government spends SCHIP money, directing it to states based on financial need.

Hapes, the GOP budget spokesperson, said that the short-term money is unlikely to be approved next year. "If it still exceeds the budget resolution, the answer is still no," she said.