Correction: An earlier version of this article misstated the first name of AARP’s New Jersey lobbyist. He is Douglas Johnston, not David Johnston. This version has been corrected.

Faced with severe budget problems, Republican governors are escalating their fight against federal rules requiring states
to maintain current levels of health-care coverage for the poor and disabled.

The growing resistance to the federal government over the hugely expensive Medicaid program poses a critical test for President Obama, who has the power to relax the rules for states.

If he allows states to tighten eligibility requirements, it will outrage many of his core supporters while undermining the central goal of his signature health-care law: expanding insurance coverage. But if the president turns his back on governors struggling to gain control of their finances by trimming their most costly program, he risks intense criticism just as his administration is locked in a battle with Republicans over the nation’s soaring debt.

“There is a growing impatience among governors,” said Mike Schrimpf, communications director for the Republican Governors Association. “As the Medicaid portion of state budgets grows, the issue becomes even more pressing.”

This week, 29 GOP governors wrote a letter asking congressional leaders for greater flexibility in spending Medicaid dollars. They say that would give them much-needed control over the soaring cost of Medicaid, often the largest single item in state budgets.

Two Republican governors are going even further. New Jersey Gov. Chris Christie, who has tangled with Democrats and their core supporters by demanding deep concessions from public employee unions, is planning to formally ask the Obama administration to allow his state to dramatically tighten Medicaid eligibility for New Jersey adults.

Meanwhile, the U.S. Department of Health and Human Services is weighing a similar request from Arizona Gov. Jan Brewer.

Across the country, governors are concerned about the burgeoning cost of Medicaid, which in fiscal 2010 consumed nearly 22 percent of state budgets, according the National Association of State Budget Officers. That’s larger than what states spent on K-12 public schools.

Medicaid’s share of states’ budgets ranged from 7.3 percent in Wyoming and 7.5 percent in Texas to 32.8 percent in Illinois and 37.1 percent in North Carolina, according to NASBO.

But while both Democrats and Republicans have sought to save money by encouraging, for example, generic drug prescriptions, home care for the elderly and managed care, GOP governors have also challenged the provision in the health-care reform law enacted last year that generally prevents states from tightening Medicaid eligibility requirements.

“This law will greatly expand state Medicaid programs, pulling tax dollars from other necessary areas like education and law enforcement,” Mississippi Gov. Haley Barbour (R) told congressional lawmakers earlier this year. He added that the health-care reform law “expanded a broken system.”

Like many in the GOP, Barbour would like to see Medicaid converted into a block grant, which would have fewer restrictions and allow states to tailor their programs. But opponents say that change could lead to a decline in the level of health care for the poor.

New Jersey Gov. Chris Christie, shown in May, is planning to formally ask the Obama administration to allow his state to dramatically tighten Medicaid eligibility for New Jersey adults. (Mel Evans/AP)

Unlike Medicare, the health-care program for the elderly that is funded by the federal government, Medicaid is paid for jointly by the federal government and the states. The federal government sets baseline standards of health coverage and eligibility for the program. States are free only to expand, not to cut back, the coverage.

Currently, the states seeking permission to tighten eligibility — New Jersey and Arizona — are among the more generous Medicaid providers in the nation. But as the cost of the program has mushroomed with the ever-increasing price of health care and a flood of new enrollees because of the recession, those costs are becoming unmanageable for fiscally struggling states, according to the GOP governors.

The federal stimulus program provided more than $100 billion to help states pay for Medicaid during the depths of the recession, but that money is all but gone.

Christie’s proposal would deny new Medicaid coverage to adults in a family of three who earn more than $5,300 a year, down from the current cutoff of $24,645. The eligibility change is part of a broader plan to save $300 million in the state’s Medicaid program.

“Even with $250 million of Medicaid savings in this budget, and additional projected savings from a $300 million global waiver to reform Medicaid, spending will grow by nearly $1 billion over last year,” Christie said in his budget address earlier this year. “That is the definition of an out-of-control program. Worse yet, we cannot make meaningful reforms because of the restrictions on New Jersey from Obama­care.

“States desperately need relief from that unfunded federal mandate,” he said.

The proposal, which officials said would be formalized later this month, has been met with sharp opposition from advocates for the poor and disabled, who are wary of any moves that would exclude needy people from the health-care rolls.

“It is pretty brutal tightening,” said Douglas Johnston, New Jersey lobbyist for AARP. “These are the poorest of the poor. They cannot afford to pay more.”

The health-care reform law, which goes into full effect in 2014, seeks to make coverage nearly universal in large part by expanding Medicaid.

The administration has not said whether it will allow states to tighten Medicaid eligibility criteria.

“We will review any request we receive carefully,” said a spokesman for the Center for Medicare and Medicaid Services. “CMS is committed to giving states the flexibility they need to administer their Medicaid programs while ensuring protections for beneficiaries.”

Earlier this year, Health and Human Services Secretary Kathleen Sebelius wrote a letter encouraging governors to look to save money in Medicaid not by tightening eligibility but by reducing benefits, improving oversight of hospital treatment, modifying optional services such as dental and prescription drug coverages, and more actively attacking waste and fraud.

But many experts worry that those categories will not yield enough to meet the necessary savings.

“The common element that is facing the states is that they are all trying to find savings in Medicaid, and there are no easy answers,” said Matt Salo, executive director of the National Association of Medicaid Directors.“Once you take reimbursement rates and eligibility off the table, you are left with limiting services, and there is not a lot of juice there.”