Just before young patients were kicked off the program, health insurers agreed to be taxed 2 percent. Because of that, combined with higher co-pays from families, the state was able to keep the program afloat for 700,000 poor children in California.
"We have found a solution. It is one of shared responsibility between government, health plans and the working families that are enrolled in the program," said Governor Arnold Schwarzenegger on September 22.
But the Obama administration sent a warning recently saying that last-ditch effort, specifically the tax, may violate federal guidelines.
Children's advocates say the consequences could be traumatic.
"If the program doesn't have enough money going forward, the health coverage of a million children will be at risk, especially during this economic downturn. This is not a time when it's going to be helpful to children and families," said Kelly Hardy, associate director of Children Now, a public policy organization for children's health.
And it's not lost on California leaders that at a time when President Barack Obama is pushing for universal healthcare that such a ruling could jeopardize coverage for children.
"It doesn't quite fit that they would not move forward to help California implement this law that would a save our program," said Hardy.
Dozens of organizations have appealed the preliminary ruling. They say a new $21-billion deficit means the state has no other means to pay for the program.
The thought of losing their healthcare prompted numerous working families to trek to Sacramento several times this past year, upset leaders would even think about slashing their benefits.
"It's really important. This is not something to play with. This is something we need to have," said Yesenia Gonsales, a Healthy Families patient, on June 17.
The feds say California may need to tweak some state laws to resolve the issue, but it's not clear whether it can be done in time.