PHOENIX - U.S. Health and Human Services Secretary Kathleen Sebelius has all but given state officials the go-ahead to scale back the Arizona Health Care Cost Containment System.
State officials have been concerned that cutting indigent health care to balance the budget could violate a maintenance-of-effort requirement in last year's federal health-care law, which could put Arizona at risk of losing all federal Medicaid funds, about $7 billion a year.
But Sebelius, in a letter to Gov. Jan Brewer, said there is no legal impediment to the state scaling back its Medicaid program, known as AHCCCS.
She said federal law requires Arizona to maintain its current coverage only until the end of its current contract with her agency, which expires on Sept. 30.
After that, Sebelius said, Arizona is free to offer an entirely new plan that does not have to include anyone whose coverage is not mandated by federal law. That means the state could drop about 250,000 Arizonans who don't meet the federal standard but are now covered under an expanded state standard approved by voters in 2000.
The fate of those AHCCCS clients is likely to be decided by the state Supreme Court, as critics of the cuts contend the planned reduction violates the voter mandate to expand AHCCCS eligibility, and they've threatened to sue.
Brewer, who sought a formal waiver from federal requirements, originally wanted to trim 280,000 from the rolls of about 1.2 million people. Sebelius, however, said the state cannot drop that last 30,000 - mostly parents of children who remain eligible - without running afoul of federal law.
Aides to Brewer said the governor will decide soon whether to live with what Sebelius has said is allowable or try to fight to eliminate the last 30,000.
The 2000 voter initiative requires that funding for the expanded program come from Arizona's share of a nationwide settlement with tobacco companies, as well as proceeds from a cigarette tax. But it also says those funds "shall be supplemented, as necessary, by any other available sources, including legislative appropriations and federal monies."
A constitutional amendment precludes lawmakers from repealing or altering programs approved at the ballot.
Brewer said the state's budget deficit, coupled with the language about "available" funds, provides her with the exception she needs. "If the money's not there, how are you going to fund it?" she asked.