California children’s healthcare program gets a reprieve

California won a reprieve Thursday from a federal threat to undercut funding that has kept nearly 700,000 children from being yanked off a state health insurance program for the working poor.

Cindy Mann, director of the federal Center for Medicare and Medicaid Services, told state officials in an e-mail that her agency would delay a final decision on the issue until at least mid-2011.

That will allow the state’s Healthy Families program to continue operating under a plan adopted by the Legislature in September and signed into law by Gov. Arnold Schwarzenegger. The $196-million plan included raising about $100 million with a 2.35% tax on health insurance firms serving the poor, a scheme that federal officials had said might not meet regulatory muster.

State officials said the delay of a decision will at least allow California some breathing room, including an opportunity to regain some fiscal footing -- and the tax receipts needed to fund programs like Healthy Families -- when the economy revives.

In addition, by the time a decision is made, the potential effect of any federal healthcare overhaul would probably be clear, possibly providing additional funding.

“I was confident the Obama administration would help us,” said Assembly Speaker Karen Bass (D-Los Angeles), who wrote the legislation that kept Healthy Families afloat.

Federal health officials did not return calls or e-mails seeking comment.

Mann’s notice comes one day after Schwarzenegger and legislative leaders dispatched a letter to her boss, the Obama administration’s health and human services director, Kathleen Sebelius. In the letter, they challenged Mann’s preliminary ruling against the state’s funding plan and asked for at least a delay in a final decree because of California’s budget problems.

Those include a projected deficit of nearly $21 billion over the next year and a half.

eric.bailey@latimes.com