The fate of free health care for 250,000 Arizonans likely will be settled by the state Supreme Court.
On Tuesday, Health and Human Services Secretary Kathleen Sebelius all but gave state officials the go-ahead to scale back the Arizona Health Care Cost Containment System. Sebelius said there is no legal impediment to the state scaling back its Medicaid program.
Gov. Jan Brewer, who had sought a formal waiver from federal requirements, said Wednesday she believes this clears the way to scale back eligibility to help balance the state budget - at least part of the way.
Brewer's original request would have trimmed 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.
Brewer said she anticipates a legal fight because AHCCCS eligibility was set not by the Legislature but by voters in a 2000 initiative.
That measure 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."
And 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?" the governor asked. "I would assume there's probably going to be some lawsuits," Brewer said. But the governor said she feels "comfortable" that the 2000 ballot measure provides the leeway to slice the program without seeking voter ratification.
That contention, however, is going to get a fight.
Sen. Kyrsten Sinema, D-Tucson, noted that the spending plan the governor proposed last month seeks more cash for several state agencies, like the Department of Corrections. She said that shows there is available cash.
"It's just that the governor in her budget proposal has chosen to spend them elsewhere," Sinema said.
The federal government pays about two-thirds of the cost of caring for AHCCCS patients. But that still leaves the state responsible for about $1.4 billion, making it the second largest item in the budget following only aid to public schools.
Part of that cost is due to that 2000 ballot measure requiring the state to cover everyone below 100 percent of the federal poverty level, about $18,300 a year for a family of three. Brewer's proposal, in essence, scales back eligibility to only what is required by federal law, most notably by eliminating coverage for childless adults.
Standing in the way, however, has been a provision in last year's federal health care law requiring states to maintain coverage at what it was on the date the president signed the law or risk losing all federal Medicaid funds, about $7 billion a year.
But Sebelius, in her letter to Brewer, said there is an escape clause.
She says that law requires Arizona to maintain its current coverage only until the end of its current contract with her agency. That contract, which details what services will be provided, runs only though Sept. 30.
That, said Sebelius, frees Arizona to offer an entirely new plan to take effect on that date, a plan that does not have to include anyone whose coverage is not mandated by federal law, meaning all but 30,000 of those Brewer hopes to eliminate from AHCCCS coverage. But AHCCCS spokeswoman Monica Coury said there is no guarantee that the federal government will accept any alternative Arizona offers.
One other option remains.
The Arizona Hospital and Healthcare Association has proposed a tax on hospital revenues it believes would raise $300 million a year. Association officials said $200 million would be used to help defray the $541 million Brewer wants to cut from state spending, with the balance going back to the hospitals themselves.
An aide to Brewer said, though, that the plan neither raises the amount necessary nor covers more than one year of the problem.