U.S. questions Calif.’s healthcare plan for children of working poor

Reporting from Sacramento —  Federal health officials are casting doubt on a last-gasp funding scheme by California to keep nearly 700,000 children from being yanked from its government health insurance program for the working poor.

U.S. health officials say the plan adopted by the state during the final days of the legislative session in September and signed into law by Gov. Arnold Schwarzenegger may not meet regulatory muster.

As a result, children’s health advocates are warning that by the end of next year, hundreds of thousands of poor youngsters could lose their coverage -- even as the Obama administration continues its push for universal healthcare.

“This would have devastating consequences,” said Wendy Lazarus of the Children’s Partnership. “I really can’t believe the Obama administration wants something like this to happen at the time they’re trying to make healthcare more stable for all Americans, particularly the kids.”

Schwarzenegger administration officials and legislative leaders have worked with California lawmakers in Washington, including House Speaker Nancy Pelosi (D- San Francisco) and Sen. Dianne Feinstein, to put pressure on the Obama administration.

“We believe our solution meets the federal law and will continue to work with the Obama administration to ensure hundreds of thousands of California children are not forced out,” said Rachel Arrezola, a spokeswoman for Schwarzenegger.

California has been near the forefront of providing health insurance to children of the working poor. At its peak, the state’s decade-old Healthy Families program provided insurance to about 1 million children whose families otherwise could not afford it.

But in the face of the recent economic downturn and mammoth budget deficits, Schwarzenegger proposed huge cuts to Healthy Families, prompting a last-ditch effort by the Legislature to try to save the program.

In a rare show of bipartisanship, lawmakers passed a measure by Assembly Speaker Karen Bass (D- Los Angeles) extending a 2.35% tax on health insurers that serve the poor that would help raise nearly $100 million to keep Healthy Families afloat.

An additional $81 million came from the state’s First 5 childhood development program, and nearly $18 million more came from a shift to cheaper dental coverage and from higher premiums and co-payments for enrollees.

Bass called the deal a rare showing of bipartisan cooperation and one of the few bright spots in an otherwise dismal year.

But Cindy Mann, director of the federal Centers for Medicare and Medicaid Services, said in a letter to state health officials last month that a preliminary review of the proposal found that it failed to meet the rules for such taxes.

“We recognize that the California Legislature may need to adjust state laws,” Mann concluded in the letter. “We will work with the state to clarify policy and resolve any outstanding issues.”

The letter drew a sharp response from children’s healthcare advocates.

More than two dozen organizations -- including health organizations, churches, unions and minority groups -- wrote Mann to appeal the preliminary ruling. They noted that California’s fiscal straits have grown ever grimmer, with the state facing a new deficit of nearly $21 billion over the next 18 months.

And they pleaded for, at the very least, a reprieve that would allow the state to continue its funding scheme for a couple of years, until a new federal healthcare plan might be in place to provide funding for poor children.

“This is a potential crisis -- 700,000 kids could lose their insurance because of this federal disapproval,” said John Ramey, executive director of the Local Health Plans of California.

“That’s more kids than there are people in some states.”

eric.bailey@latimes.com