COLUMBIA--A plan to raise cigarette taxes by 22 cents a pack was rejected Wednesday by a House panel working to restructure the state's ailing Medicaid system.

MARY ANN CHASTAIN/AP Hundreds gather outside the Statehouse, Wednesday to show support for a cigarette tax increase in Columbia, S.C.

Rep. Rex Rice, R-Easley, said the tax would raise about $66 million for preventive health care programs and provide a more stable source of money for Medicaid, which serves South Carolina's poorest residents.

Meanwhile, hundreds gathered outside the Statehouse in dueling cigarette rallies -- a larger demonstration in support of a cigarette tax increase, a smaller group across the street saying the tax is discrimination.

Rice had pushed a plan to raise the tax by 42 cents a pack but reduced that just before the six-member House Medicaid Reform Ad Hoc Committee killed it.

A plan Republican House leaders unveiled Tuesday would generate $45 million for Medicaid programs next year and $36 million a year afterward by refinancing the state's tobacco settlement bonds.

That means there's no need for an additional tax to cover rising Medicaid costs, said Rep. Rick Quinn, R-Columbia, chairman of the ad hoc committee.

Rice and others say that does not address more than $60 million in Medicaid spending that lacks a reliable, annual source of funding."I'm trying to permanently fund the health-care needs with the tobacco tax," Rice said.

"I still think we're going to have the same problems next year" in covering the state portion of Medicaid's budget, said Jane Wiley, a lobbyist for AARP, which supports the proposed tax.

Quinn said the cigarette tax is not a stable source of revenue because smoking rates decline slightly each year, and a tax increase would hasten that.

"It's clear that raising the tax decreases consumption," he said. "The cigarette tax is not a panacea. ... It's a declining source of funding."

Cigarette tax plans aren't dead. Because of the way bills are handled in the House, Rice will be able to argue for a cigarette tax increase when the bill goes to the floor for debate.

At the same time, the $5.1 billion budget bill now under debate in the House could draw a cigarette tax amendment this week or when it moves to the Senate for consideration.