New Jersey filed a civil suit Monday in the U.S. District Court in Newark, N.J., in an effort to preserve states’ ability to enroll moderate-income children in State Children’s Health Insurance Program plans.

The Bush administration had been approving program rule waivers to permit states to use SCHIP funds to cover children in homes with incomes up to 400% of the federal poverty limit as well as homes with incomes closer to the federal poverty limit.

In August, Bush administration officials told states in a letter the government would stop reimbursing them for covering children in families over 250% of the federal poverty level unless the states first showed they had provided coverage for almost all low-income children.

New Jersey officials argue in their complaint, in State of New Jersey vs. U.S. Department of Health and Human Services, that the Bush administration went around the usual public rule-making process when it told them about the 250% federal poverty level income limit.

New Jersey now covers children in homes with incomes up to 350% of the federal poverty level.

The bill that has authorized SCHIP expired Sunday.

Congress has sent President Bush a SCHIP authorization extension bill. Bush has threatened to veto the bill, H.R. 976, arguing that it is too expensive and could expand public insurance for children in ways that might crowd out employer-sponsored dependent care benefits.

“President Bush believes that SCHIP should return to it’s original focus, which is helping those children in need,” White House officials say.

California Gov. Arnold Schwarzenegger, a Republican, has agreed to join with New Jersey in the battle against the Bush administration’s approach to setting SCHIP income guidelines.

Other states that say they will join the battle include Arizona, Illinois, Maryland, New Hampshire, New York and Washington, officials say.

New Jersey Gov. Jon Corzine, a former chairman of Goldman Sachs Group Inc., New York, who is still receiving medical care himself in connection with a near-fatal automobile accident that took place in April, issued a statement saying the Bush administration approach to setting SCHIP income limits would force New Jersey to drop coverage for about 10,000 New Jersey children.

“SCHIP is an unqualified bipartisan success in New Jersey and in states across the nation, and the Bush administration’s determination to pursue a course of action that will harm our children’s health is incomprehensible,” Corzine says in the statement. “This same administration previously signed off on our decision to cover the 10,000 kids; they are now seeking to kick out of SCHIP, and the lawsuit we filed today demonstrates that we will simply not let that happen.”