Bush dictates terms for state healtcare coverage

In a not-too-surprising move, the federal government has issues strict guidelines making it virtually impossible for states to offer health insurance to those over 200% of the poverty line. This is all done in the name of "returning focus to low-income children": but for a single mom with one child, 200% of the poverty level is just over $25,000 a year. Rent and utilities can easily take away more than half that income, and you can quickly begin to see why states might want to extend health care to families who make a bit more.
The article in the New York Times gives more details:
...states must demonstrate that they have “enrolled at least 95 percent of children in the state below 200 percent of the federal poverty level” who are eligible for either Medicaid or the child health program.

Deborah S. Bachrach, a deputy commissioner in the New York State Health Department, said, “No state in the nation has a participation rate of 95 percent.”

And Cindy Mann, a research professor at the Health Policy Institute of Georgetown University, said, “No state would ever achieve that level of participation under the president’s budget proposals.”

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