The Senate agreed on Friday to rescind a 21 percent pay cut that went into effect earlier this month for doctors treating patients under the Medicare health program for the elderly.

The Senate agreed unanimously to restore Medicare payments with a 2.2 percent increase and to delay any further pay cuts for six months. The Senate acted on Medicare payments after a broader tax bill that would have temporarily stopped the pay cut failed on a procedural vote late on Thursday.

The doctors will be paid. Seniors will get the benefits they deserve, said Senate Finance Committee Chairman Max Baucus.

He said he hoped senators will work out other disputes over the broader tax bill that also would extend unemployment benefits for hundreds of thousands of jobless workers whose benefits ran out last month.

That bill also would renew a set of popular business tax breaks and would pay for it in part by raising taxes on investment fund managers who now enjoy a low 15 percent capital gains rate on their earnings.

The Senate approved the six-month pay fix for Medicare doctors after Democratic and Republican leaders agreed to fully offset the $6.4 billion cost. The offsets include a hospital claims adjustment provision and a measure that gives companies some pension funding relief.

It also raises money by clearing the way for more cooperation between the Centers for Medicare and Medicaid Services, which oversees the government healthcare programs, and the Internal Revenue Service on tax debt and Medicare reimbursements.

I think we've come up with a proposal that achieves a goal that both sides wanted to achieve, which was to get a doctor fix for at least a six-month period of time and also it is paid for, said Senate Republican Leader Mitch McConnell.

The $1.4 trillion budget deficit and $13 trillion debt are major issues heading into the November congressional elections and lawmakers are balking at adding to the flow of red ink.

The Medicare payment fix has to be approved by the House of Representatives before it can go into effect.

Doctors are pushing for a permanent update to the Medicare payment system. For years, Congress has avoided a permanent fix because it would add billions to the budget deficit outlook. But lawmakers do not want doctors turning away elderly patients so they have been enacting a series of temporary fixes to the Medicare payment system to prevent steep pay cuts.

(Reporting by Donna Smith; Editing by Chris Wilson)