As Congress prepares to vote on an SCHIP bill that President Bush has promised to veto, sources on Capitol Hill tell me that Republicans are working feverishly to introduce an alternative that would satisfy conservatives and shore up enough support among moderates to sustain the veto.

Sen. Mel Martinez and other Republicans are working on a true compromise bill. It is designed to give wavering Republicans an alternative to the $35-billion expansion of SCHIP. A version similar to the Martinez bill is expected to be introduced in the House.

Martinez and other Republicans have resolved their differences that doomed an alternative SCHIP bill just two months ago. The new agreement has the support of conservative activists such as Grover Norquist of Americans for Tax Reform as well as the White House.

Martinez’s bill is based on the tenets of a Heritage Foundation proposal by health-care experts Stuart Butler and Nina Owcharenko. It includes three simple components:

• Reauthorize SCHIP for eligible children. The bill would continue to cover kids in families with incomes at or below 200% of the federal poverty level.

• Enact a child health care tax credit. Rather than putting more people on a government-run program, the bill would offer tax credits to families with incomes between 200% and 300% of the poverty level. This would cover the population targeted by liberals with their bill, but instead of forcing them to drop their current coverage, it would provide assistance to keep their current insurance plan.

‚Ä¢ Adopt a “federalism” health-care initiative. The bill encourages greater experimentation at the state level to expand health-care coverage.

A final vote on the $35-billion SCHIP expansion is expected to come later today or tomorrow in the House and Senate. While there’s virtually no hope of sustaining a veto in the Senate (where as many as 69 senators could support SCHIP expansion), the prospects are much better in the House.

“This is a defining vote for Republicans. You are either for or against health care directed by the Washington bureaucracy,” Rep. Eric Cantor (R-Va.), the chief deputy whip, told Congressional Quarterly today.

Still, some moderates, such as Reps. Heather Wilson and Ray LaHood, are lobbying their colleagues to support the Democrats’ bill. With an alternative on the way, however, those renegade Republicans should find it harder to peel off other moderates.