By Spencer S. Hsu
Washington Post Staff Writer
Monday, February 9, 1998; Page D01

RICHMOND—Pearl Y. Royal has chauffeured her rowdy school bus in Fairfax County for 11 years, hoping she wouldn't bring home the flu from other people's children.

That's because on her $14,000 annual salary, Royal, 45, can't afford to pay the $109 a month it would cost to provide health insurance for her five children, she said.

That could change soon, as Virginia and Maryland are considering the largest expansion of government health care in a generation, a program that would give comprehensive medical coverage to as many as 160,000 children whose parents work but are too poor to afford plans on their own.

In Richmond, Annapolis and across the nation, lawmakers this winter are seizing upon $24 billion in federal funds aimed at insuring approximately 10 million American children of the working poor over the next five years.

The lure of the federal money is triggering battles in state legislatures over how to shape the new coverage: Should states expand Medicaid-style programs or copy more-limited employee health plans? Rely on managed care or traditional physician-assignment plans? Require family co-payments and deductibles, or not?

Much of the discussion reflects recent social policy debates between liberals and conservatives in Washington over entitlements and welfare spending. But the outcome will be felt most by people such as Royal, a West Virginia native who drives her route in Fairfax's South Lakes neighborhoods by day and attends her sons' basketball games by night.

"It's kind of frightening on the bus, the kids passing germs and viruses from one to the next. That's a horror for me," said Royal, who said she used to keep her children from playing sports and even going out in cold weather -- "putting them in a bubble," she said -- to try to protect their health.

When a child got sick and went to a Fairfax hospital's emergency room, Royal said, she would lie and say she forgot her insurance card. When doctors prescribed antibiotic pills, she would freeze some, "saving them so we could share later."

"I knew they needed the whole quantity of medicine," Royal said, "but in our circumstances, we had no choice. When you have a child that's sick and you don't have anything, it's a parent's nightmare."

This winter, Maryland Gov. Parris N. Glendening (D) and Virginia Gov. James S. Gilmore III (R) have separately proposed spending $30 million each to provide coverage to 60,000 children in families above the poverty line, such as Royal's.

Both states are certain to pass such a plan, joining 16 others that already have submitted applications to the federal Health Care Financing Administration under the KidsCare initiative approved in August by President Clinton and Congress. One state, Alabama, has been approved, and all 50 are expected to apply by a July 1 deadline.

In a microcosm of the national debate, Virginia Democrats want to cover twice as many children as Gilmore does, setting up a likely confrontation with the new Republican governor on the politically sensitive issue of children's health.

The conflict is a common one nationwide. Advocates are squaring off over how generously to extend such coverage without reversing the lessons of self-sufficiency taught by welfare-to-work programs, burdening state agencies with new federal rules or discouraging workers from buying private insurance.

"This represents the most significant opportunity for Virginia to cover a larger portion of the uninsured than we've had in 30 years," said Pat Finnerty, an analyst with the state's Joint Health Care Commission, which backs the bigger Virginia plan. "There are 850,000 Virginians who are uninsured, and if you reach all the kids here, you're talking more than 10 percent of the entire problem."

Today, the Gilmore administration will propose a plan to cover 57,000 children by 2000, at a cost of $30 million in state money and $35 million in federal aid. The plan would reach families making up to 175 percent of the federal poverty level, or $28,000 a year for a family of four, and offer the same benefits that state employees now receive.

But Virginia Democrats say they can cover nearly twice as many children, 104,000, in families making as much as $40,000 a year. The Democratic plan would cost $48 million in state funds but would qualify for more federal aid: $82 million.

Democrat Glendening's plan for Maryland would spend $29 million in state funds and $47 million in federal money to cover 60,000 children in families making as much as $32,000, or 200 percent of the poverty line.

Backers of the Democratic programs say that by expanding Medicaid, the nation's health insurance for the poor, their plans would be cheaper, more efficient and more generous. They would include benefits such as preventive care and eye and mental health coverage that state employees lack.

"It would be much more beneficial and easier to expand the Medicaid program," said Joseph E. Teefey, former director of Virginia's Medicaid agency, whose stance echoes a coalition of 70 hospital, physician, child advocacy, labor and liberal groups backing the Democratic program in the state.

"The purpose of the federal legislation was to get as many kids under the program as possible, and this achieves it," Teefey said.

But Teefey's successor, Gilmore aide Robert W. Lauterberg, laid out the conservative argument for a smaller program.

"Our plan is health insurance; it's not public assistance," Lauterberg said.

Democrats, he said, "propose to expand Medicaid public assistance to middle-income families earning up to $40,000. Our plan will give children the greatest access to the mainstream medical community," he said, with coverage equal to that of "most working Virginians."

Of the 16 states that have applied for federal approval, eight are relying on Medicaid, four on their own programs and the other four on blended plans. But even those states expanding Medicaid typically are renaming their programs to avoid being associated with welfare.

For now, Gilmore aides privately say the issue is "black and white" and call chances of a compromise unlikely, especially since the GOP now controls the Virginia Senate and has a share of the House leadership.

But Senate President Pro Tempore Stanley C. Walker (D-Norfolk) continues to recruit GOP supporters for the Democratic plan, including Senate Education and Health Committee Chairman Jane H. Woods (R-Fairfax).

"I can't quite understand their position," Walker said of Gilmore's office. "I think the administration ought to take another look."

In Maryland, the Democratic legislature and governor also have sparred over personal responsibility, on a smaller scale.

Although the Senate has backed Glendening's plan to cover children at no cost to their families, House Speaker Casper R. Taylor Jr. (D-Allegany) and Majority Leader John A. Hurson (D-Montgomery) initially demanded that the state adhere to its welfare overhaul philosophy and require parents to contribute at least a minimum co-payment in any child insurance effort.

Some observers say that the political debate is overshadowing some practical concerns.

"Ideology is driving states' decisions, rather than some cost concerns and administrative concerns," said Frank C. Ullman, research associate at the nonpartisan Urban Institute, which is studying states' implementation of the child health insurance plans.

Health insurance advocacy groups say the success of the child insurance effort will affect the prospects for future attempts to assist uninsured Americans in families like Royal's.

"To the extent we fail," said Ron Pollack, executive director of Families USA, "it won't speak well for our ability to reach out to other populations."

Staff writer Daniel LeDuc contributed to this report.