Virginia's Republican-controlled legislature passed a two-year budget late on Thursday that shot down the Democratic governor's proposal to expand Medicaid and closed a $1.55 billion revenue shortfall.
Expanding Medicaid, the health insurance program for low-income people, to about 400,000 Virginians under the federal Affordable Care Act had been Governor Terry McAuliffe's chief legislative priority. He has not said whether he will approve the lawmakers' spending plan.
McAuliffe, in a stand-off for months with Republicans, had linked the budget to Medicaid expansion. The impasse was broken this week when a Democratic state senator said he resigned to secure his daughter a judgeship, giving the Republicans control of the upper chamber.
The Senate passed the spending plan 21-18, and the House of Delegates voted for it 69-31. A July 1 government shutdown looms if a budget is not approved.
"When this budget reaches my desk I will evaluate it carefully and take the actions that I deem necessary," McAuliffe said in a statement on Friday. "But this fight is far from over."
The Affordable Care Act, launched in October and also known as Obamacare, is designed to extend health coverage to uninsured Americans through subsidized private health insurance and by expanding Medicaid coverage. Medicaid is run by states but overseen by the federal government.
The U.S. Supreme Court has allowed states to opt out of Medicaid expansion. Obamacare is unpopular among Republicans and has become a campaign issue ahead of the November midterm congressional elections.
The budget bill would slash spending by nearly $900 million and tap a state reserve fund to cover the shortfall.
(Reporting by John Clarke; Editing by Ian Simpson and Dan Grebler)