Five states to sue over child health plan

NEW YORK (Reuters) - Five states said on Monday they will sue the federal government to block new rules governing a children's health insurance program that they fear will force them to drop some children.

New York, New Jersey, Maryland, Illinois and Washington will file suit in the U.S. District Court for the Southern District of New York later this week, a spokeswoman for New York Gov. Eliot Spitzer said.

Arizona, New Hampshire and California will back the lawsuit with friend of the court briefs, the spokeswoman, Christine Anderson, added.

The State Children's Health Insurance Program, which relies heavily on federal funding, initially focused on children from low-income families who do not qualify for Medicaid, but states increasingly have sought to cover those from more moderate income families who lack employer-paid plans and say they cannot afford private insurance.

Under the new rules, children who have no health benefits would have to wait a year before joining the state plans. States would have to cover 95 percent of poverty-level families before enrolling more middle-income children, a requirement some states say they cannot meet.

"The states are seeking a court ruling declaring those rules unlawful and prohibiting the federal government from applying the rules when reviewing individual plans," Spitzer said.

Spitzer said the Bush administration put out the rules without the required public comment period.

The lawsuit comes as President George W. Bush has vowed to veto a bill passed by the U.S. Congress last week that would expand the program, partly by raising cigarette taxes to help cover the added cost.

Bush says the bill, which will cost $35 billion over five years and increase cigarette taxes 61 cents per pack, is a step toward nationalized health care.

Sponsors of the bill have said that Bush's claim that families making as much as $83,000 a year would qualify for the plan are false. The Democrat-led House of Representatives lacks the votes to override a veto, though the Senate passed the bill with a veto-proof majority.

On August 17, the federal government told states they would no longer be reimbursed for covering children whose family incomes top 250 percent of the federal poverty level.

New Jersey will have to stop covering 10,000 children if the new rules go into force, Gov. Jon Corzine, a Democrat, estimated.

Just last year, the Bush administration allowed New Jersey to cover children whose families earn up to 350 percent of the federal poverty level, Corzine noted.

Jeff Nelligan, a spokesman for the Centers for Medicare and Medicaid Services, the agency that runs the program, said the requirements were appropriate and would be upheld by a court.

"Our chief goal with SCHIP (State Children's Health Insurance Program) is to ensure that the poorest kids and those with no health insurance are placed at the front of the line," he added.

Governors from some of the states that will join the lawsuit said limiting coverage under the program would be a blow to working families.

"Hard-working families are caught in a no-win situation -- they earn too much to qualify for Medicaid, their employers do not offer coverage, and they cannot afford private coverage," said New Hampshire Democratic Governor John Lynch.

The federal poverty level in 2007 for a family of four is set at a yearly income $20,650 for all of the states except Alaska and Hawaii.

(Additional reporting by Lisa Lambert in Washington))