Janet Napolitano, in what likely will be her final State of the State address as governor, urged lawmakers to "protect our advances in health care," specifically mentioning the state's KidsCare program that provides health care coverage for Arizona children.

"As we continue to prepare for our future, we must not overlook those in need right now," Napolitano said. "It would be wrong to hurt our seniors, our youngest children and those who are ill or disabled in the name of balancing the budget."

Jeanine L'Ecuyer, the governor's deputy chief of staff for communications, said the governor has urged the Legislature to expand, or at least maintain, the level of funding for programs that assist the most vulnerable people in society.

But it's going to be a difficult push to convince lawmakers to increase funding for any program that relies on state revenue, as the Legislature tries to cut billions from this year's budget and next to combat a massive revenue shortfall that could cripple the state's finances in 2010.

Even some Democratic lawmakers said the state simply cannot afford anything that would add to the budget's bottom line.

"In an ideal world, we would like to expand these things (KidsCare)," said Eric Meyer, a Democrat from Scottsdale. "But when we are facing a deficit of the size that we are, I think it would be difficult to expand those programs."

But Napolitano is not counting on the state to shoulder the burden alone. The federal government, she said, is poised to increase its matching funds to states for Medicaid programs such as KidsCare.

"Some fear that little can be done right now about these pressing problems," the governor said. "But Congress is likely to increase aid for state Medicaid programs. And when that happens, Arizona can continue its work to improve health care . . ."

Rep. Phil Lopes, a Democrat from Tucson, agreed additional revenue from the federal government would benefit the state's health care programs, but he said the governor should instead focus her message on maintaining existing state KidsCare dollars instead of looking for more.

"I do not think that in this economic climate that obligating state funds, and we would have to obligate state funds, is prudent at this time," Lopes said. "My concern is keeping what we've got."   

The 1998 implementation of KidsCare – also known as the State Children's Health Insurance Program (SCHIP) – resulted from the federal government's decision to provide grants to states willing to offer health care coverage exceeding what Medicaid provides to children.

Arizona children from households earning less than twice the federal poverty limit, or approximately $46,000 annually for a family of four, qualify to receive coverage for wellness care, vaccination and vision under KidsCare.  

More than 300 children enrolled in KidsCare in November, bringing the overall enrollment total to 64,377 children at the end of that month.

As of October 2008, KidsCare receives $3 from the federal government for every $1 provided by the state, but some states are expecting Congress to enhance the cost-sharing formula as part of a stimulus package for economically struggling states.

Under a revised formula, the federal government is expected to increase its contribution to the state's health care programs by as much as 12 percentage points, making the federal contribution more than $7 for every $1 the state invests.

Other Medicaid programs provided by the Arizona Health Care Cost Containment System (AHCCCS) – the state's Medicaid agency charged with managing KidsCare – are also subsidized by federal formula. Non-KidsCare programs receive $2 for every $1 provided by the state, but the anticipated change to the formula could result in a federal match of 3-to-1.

The increase would be significant but not enough to offset AHCCCS's budgetary shortfall, according to an analysis by the Joint Legislative Budget Committee, partly because federal contributions to state Medicaid programs have continuously decreased since 2005.