PHOENIX -- Gov. Jan Brewer submitted a plan to the federal government Thursday that would restore transplant funding for the needy but eventually eliminate health coverage for close to 140,000 who now get regular care from the state.

The proposal to Health and Human Secretary Kathleen Sebelius is designed to save the state about $500 million this coming fiscal year, close to half of the anticipated gap between revenues and expenses. It would include new requirements for enrollees in the Arizona Health Care Cost Containment System, the state's Medicaid program, to pay small fees for their care and financially penalize those who use hospital emergency rooms for treatment that could be done elsewhere.

There also would be additional charges for AHCCCS recipients who smoke. Those who are obese or have chronic conditions like diabetes would have to adhere to a care plan or also face additional charges.

And those enrolled in AHCCCS would have to prove they remain eligible every six months, twice as often as now required.

Brewer's move is a rejection of an alternative by the Arizona Hospital and Healthcare Association to tax its members to raise enough money to save much of the AHCCCS program. The hospitals argued the plan would increase the number of uninsured in Arizona and force layoffs at hospitals.

It also is going to trigger a lawsuit over the key provision to halt

enrollment of any more childless adults and some parents with children.

But attorney Tim Hogan of the Center for Law in the Public Interest said these people remain eligible for coverage under a 2000 ballot initiative which requires the state to provide care for anyone below the federal poverty level, about $18,310 a year for a family of three. And a state constitutional provision bars lawmakers from altering voter-approved measures.

Brewer press aide Matthew Benson countered that the 2000 ballot measure said expanded coverage would be funded with tobacco taxes, Arizona's share of a settlement with tobacco companies and other ``available sources.''

``Given that we've cut well over a billion dollars (in) last year's budget, more the year before, certainly well over a billion dollars in next year's budget, I think it's clear the state doesn't have the available sources to fund this program,'' he said.

Hogan said that's not true.

``They've just chosen to reprioritize their funding obligations,'' he said.

``They spend a billion dollars on prisons. They spend $3.5 billion on K-12,'' Hogan continued. ``The principle here is you've got to fund your legal obligations first. And this is a legal obligation.''

He vowed to sue the moment Brewer signs the budget bills making the changes.

Brewer originally proposed cutting care for about 280,000 people out of the approximately 1.3 million now enrolled in AHCCCS. That provoked an angry reaction from some elements of the business community.

Glenn Hamer, president of the Arizona Chamber of Commerce and Industry, said those forced off the AHCCCS rolls eventually would end up in hospital emergency rooms with more serious conditions because they can't get the routine care they now are provided. He said hospitals, which cannot turn away patients with emergencies, then would pass the cost on to other patients, meaning higher rates and higher insurance premiums, possibly forcing some employers to drop coverage.

The modified plan submitted to Sebelius Thursday is designed to save Arizona the same amount of money as the original proposal.

It keeps the original concept of scaling back eligibility. But anyone already enrolled could stay, with the idea some will get better or get jobs. At that point, however, they could not reenroll even if their income again falls.

Brewer said savings in the plan will allow repeal of last year's decision to no longer fund certain transplants, those which lawmakers concluded cost a lot but did not really extend the life of the patients. That moved was budgeted to about $1.1 million but left close to 100 AHCCCS recipients who had been on waiting lists without coverage.

Several people have died in the interim.

All that, however, requires cutting elsewhere.

Gone would be the ``spend down'' program. It provides temporary care for those whose recent income is too high to qualify but who have suffered some catastrophic illness or injury whose costs would eat up most of their resources.

Brewer also figures the state can save money by requiring people to reapply every six months. That is critical for a state like Arizona which pays insurers a flat monthly fee to provide care to everyone signed up regardless of how much or how little care that person needs.

``This proposal ensures that the Medicaid program serves only those who are eligible,'' Brewer wrote to Sebelius.

Brewer also defended the ``personal responsibility'' elements of the plan, including co-pays and financial penalties for those who miss appointments. And she said the ``wellness'' provisions ``are critical to ensuring that enrollees are making decisions that positively impact their health and well-being, and that they have a financial stake in those decisions.''