State lawmakers today voted to kill Healthy Families -- a medical insurance program that serves some 900,000 children from low-income families.

Those kids will now be shifted over to the Medi-Cal system, which already serves nearly four million of the state's poorest children.

The move is part of the budget compromise that will save the state an estimated $13 million this year -- although the savings are expected to grow to $73 million by 2015.

Kevin Yamamura, a reporter with the Sacramento Bee, has been covering this issue.

Tara Siler: It seems like Healthy Families has been a pretty popular program among both Democrats and Republicans -- was this strictly a budget decision by the governor?

Yamamura: The governor has proposed eliminating Healthy Families since he took office last year. He's wanted to seek some kinds of efficiencies and he says all the kids should be under one public health program.

Siler: Why did the Republicans want to save Healthy Families? Usually Democrats are the ones trying to defend social programs.

Yamamura: I think Republicans thought this program worked better than Medi-Cal. The access is better as well as there are more private insurers involved. And the kinds of services that are part of this program they prefer over Medi-Cal, which has issues with having enough reimbursements. The reimbursements are low to providers which causes many of them to drop out of Medi-Cal, not serve patients. The medical community - doctors - prefers Medi-Cal. The California Medical Association was against this proposal today.

Siler: Were the Democrats divided on this?

Yamamura: I don't think this was a proposal that Democrats loved from the start. I do think it was something that they agreed to as part of an overall budget negotiation with the governor.

Siler: So it was a compromise. But it seems like there are some pretty big financial tradeoffs with this decision: the state could lose federal matching funds by ending Healthy Families and it also risks losing $183 million in taxes on managed health-care plans.  Can you explain why that tax is now at risk?

Yamamura: It's at risk because each year they need two-thirds of the legislature to approve any tax and this is considered a tax. So, they'd need some Republican support to pass this tax on managed care health plans. In this case because the Republicans. because they are frustrated by the elimination of Healthy Families, they say they're not going to vote for this tax. It's an interesting tax because in the past insurers agreed to it because they basically got the money back, not just from the tax that came back to them through Healthy Families patients, but also from the federal matching funds.

Siler: If that tax is killed- could that blow a hole in the budget?

Yamamura: It's about $183 million. They are planning for an $800 million reserve and that's even before the governor does some line-item vetos, which we expect tonight.

Siler: Would it wipe out the savings from dropping Healthy Families?

Yamamura: Well certainly the $183 million is much greater than the $13 million they are talking about saving this year. So if you look at it from that standpoint, that's what a lot of the advocates for Healthy Families program have said.

Siler: Children’s advocates say this move could end up hariming kids' health care because Medi-Cal is already stretched so thin, partly because many care providers opt out of the program because its reimbursement rate for services is so low. How do Democrats and the Governor respond to that concern?

Yamamura: They are working with health care providers to convince them to continue serving these Healthy Familiy patients in Medi-Cal. It does involve a lower reimbursement to doctors and other providers. As far as the impacts overall, the concern is that it's not just to the Healthy Families children, the 880,000 or so of those, but also to the four million Medi-Cal children because you are adding this additional population to the overall mix. And they will have to, in theory, scramble to find providers in this Medi-Cal system that has been stretched thin in recent years.