WASHINGTON (AP) – Hundreds of thousands of middle-income families with disabled children would be eligible for Medicaid under legislation that passed the Senate Thursday.

The bill is designed to address the dilemma faced by parents who have to turn down jobs or raises and, in some cases, give up custody of their disabled children to continue receiving government-paid health care.

Parents would be able to buy into Medicaid while continuing to work and earn an annual income of up to 250 percent of the federal poverty level, roughly $47,000 for a family of four in 2004.

The changes would cost $7 billion over 10 years, according to the Congressional Budget Office.

“The problem is some families fall through the cracks. Many parents of disabled children have to drop out of the work force or keep themselves in a low-paying job just to remain eligible for Medicaid,” said Sen. Charles Grassley, R-Iowa, co-author of the bill with Sen. Edward Kennedy, D-Mass.

Despite widespread support in both chambers of Congress, the bill has languished since 1999 because of concerns among some Republicans about expanding the joint federal-state health care program for the poor.

The version that passed Thursday is less costly than the original bill and allows states to decide whether to expand coverage.

Still, support cuts across ideological lines. Conservative Republican Rep. Pete Sessions of Texas and liberal Democratic Rep. Henry Waxman of California are backing a similar bill in the House.

The legislation was prompted by the experience of Dylan Lee James, a Texas boy who was born with a severe heart defect and Down syndrome. When the boy’s stepfather, a plumber, got a raise, James lost Medicaid coverage. He died in 2001 at the age of 6.

“The law as it stands now unjustly punishes people when what we should be doing is making resources available to them,” Sessions said. He has a 10-year-old son with Down syndrome.