By Steve Schifferes BBC News Online in Washington

After years of debate, the Congress is moving rapidly towards reform of the Medicare health insurance system, adding a drug benefit for the first time.

Bush wants to inject competition into the Medicare system

Congressional leaders are increasingly optimistic that they will reach approval by the 4th of July - American Independence Day - over a radical reform of Medicare.

In a key deal, Republican and Democratic Senators on the finance committee reached agreement on making the prescription drug benefit available to everyone in the programme.

Both parties have promised for years to add prescription drugs to Medicare .. Today we're here to deliver. Senator Charles Grassley, chairman, Senate Finance Committee

On Thursday night they voted 16-5 to pass the bill, marking a major step forward in the long fight over adding drug coverage in Medicare, a priority for older voters.

Committee chairman, Republican Senator Charles Grassley, said both parties had "promised for years to add prescription drugs to Medicare" and were "here to deliver".

And the committee's leading Democrat, Senator Max Baucus, described the bill as "landmark legislation".

Meanwhile, President George W Bush has been speaking in favour of Medicare reform for the second time in two days..

"For years, leaders of both political parties have talked about these reforms. Now is the time to get the job done," he told doctors and health care workers at a hospital in New Britain, Connecticut.

Medicare crisis

Some 40 million elderly Americans have most of their hospital bills and doctors' fees paid by the government through Medicare, but the plan does not include drug coverage.

The Bush administration has budgeted $400bn over ten years to pay for the new benefit - but it also wants more senior citizens to join group health plans which it believes could help contain the growing costs of the programme.

US HEALTH CARE PLANS Fee-for-service: patient can choose any doctor, cost paid by Medicare on a fixed scale PPO (preferred provider network): patient chooses doctor from a list of participants in health insurance scheme who agree to be directly reimbursed HMO (health maintenance organisation): patient can only get care from specific doctors after authorisation from HMO insurance provider

However, both House and Senate leaders have rejected proposals which would force seniors into such programmes if they are to receive full drug benefits.

The new plan would establish a new option in Medicare, called PPOs, which would also seniors to join a network of physicians who offer care at lower prices.

But no one is sure how many seniors would join such a plan, with estimates ranging from 4% to 40% of current members.

Earlier attempts to move seniors into managed care have not been very successful, with 88% still in traditional fee-for-service plans.

In a key compromise, President Bush has accepted that all seniors will get the same drug benefit.

Details of plans

The details of the plans are still likely to be the subject of some debate between the House and Senate.

While both limit the amount of drug benefit that can be claimed, the Senate pays just 50% of the cost of drugs up to $3,450 per year, while the House pays 80% up to $2,700 (both with a $275 deductible and a $35 monthly premium).

The average Medicare beneficiary spends $2,318 on drugs each year.

Some advocacy groups are concerned that the drug benefit would not cover people who have very expensive medicines, although both plans do allow for so-called "catastrophic coverage" for people with costs above $5,300.

Meanwhile, drug companies are concerned that the introduction of the drug benefit will lead to pressures to limit the cost of medicines, and restrictions on which drugs can be prescribed.

But so far, the powerful pharmaceutical lobby, which spends millions of dollars in lobbying Congress each year, seems to have been taken by surprise by the growing momentum for Medicare reform.

Democrats say that the benefit is too small, but they are prepared to back the plan as a first step towards reform.