The administration unveiled several new requirements last year for states that use a state-federal health program to cover children in families with incomes above 250 percent of the federal poverty level — $44,000 for a family of three.
States were directed to make the changes in their State Children's Health Insurance Program by Monday or potentially face financial penalties.
Among the required changes:
* Children must be uninsured for one year before they could enroll; and
* At least 95 percent of poor children eligible for Medicaid or SCHIP were already in those programs before states covered higher-income children.
The directive was aimed at 15 states that extended health insurance to children in families with incomes above 250 percent of the federal poverty level.
Many governors and Democratic lawmakers criticized the administration's new guidelines as impossible to meet. They said the final result would be that more children would go without health coverage as states rein in their programs.
With the deadline fast approaching, the administration made clear that the states were under no immediate threat of losing federal funding.
"At this time, we are not taking compliance action," said Jeff Nelligan, spokesman for the Centers for Medicare and Medicaid Services.
Nelligan said the agency was still determining whether the 15 states were in compliance and that it would work with them to ensure that the "most vulnerable, low-income children are covered first, without moving them from private to public coverage."
SCHIP is a federal-state partnership that provides health coverage to about 6.6 million people, the vast majority of them children. The program was at the center of a lengthy, contentious battle in Congress last year. Lawmakers tried to more than double spending on the program from about $5 billion annually to about $12 billion. But President Bush twice vetoed the legislation. Bush said the bills would move too many children from private health insurance to government-sponsored coverage. He also opposed the increase in tobacco taxes that would have paid for the expansion.
The administration's directive to states went out early in the debate. State and federal officials wanting to expand the program were outraged. Altogether, nearly two dozen states use their SCHIP programs to subsidize health insurance coverage for children in families above the threshold set by the administration, or had plans to do so.
After the directive was issued, some states scaled back plans to expand their SCHIP programs above 250 percent of the poverty level, including Indiana, Louisiana and Oklahoma, according to Georgetown University's Center for Children and Families.
"Tens of thousands of kids have already lost out on coverage as a result of the directive," said Cindy Mann, the center's executive director.
Several states including California, New Jersey and New York filed lawsuits seeking to void the guidelines.
In April, the Government Accountability Office said the administration overstepped its authority by issuing a rule change without congressional review.