Nearly 10,000 working parents will lose their health insurance this month in the wake of state budget cuts, leaving some families with nowhere to turn as they seek affordable coverage.

KidsCare Parents, a program that provides low-income families with inexpensive insurance, will end Sept. 30. The Arizona Health Care Cost Containment System, which administers the program, could not pay the $6 million annual cost following cuts by the Legislature. The state faces a $3 billion budget shortfall.

The move comes as demand for government assistance is skyrocketing. Arizona has lost an estimated 240,000 jobs since December 2007, and AHCCCS has added 150,000 people to its rolls since January.

"It's always difficult to make a decision like this," said Monica Coury, an AHCCCS spokeswoman. "But, on the other hand, there's a broad recognition that the state is in a fiscal crisis, and difficult decisions are being made across the board."

Families received letters last week, informing them that parents will have no insurance as of Oct. 1. Children covered by KidsCare will keep their health insurance.

The news came as a shock to program member Don Dowling, a Gilbert resident who had surgery scheduled on Oct. 15 to remove his kidney stones.

Dowling has been scrambling to get his surgery rescheduled for this month. Otherwise, he said, he will not be able to pay the estimated $10,000 cost.

"All the things they could cut out, and they're going to cut out insurance on people who actually need it, who have pre-existing conditions that are very serious," said Dowling, 33. "Are you kidding me?"

KidsCare Parents began in 2003 as an extension of the federal State Children's Health Insurance Program, called KidsCare in Arizona. To be eligible for coverage, families had to make less than two times the federal poverty level, or about $44,000 a year for a family of four.

For a $6 million annual contribution, Arizona received $18 million in federal grants to administer the program for parents. Patient premiums, which were set at 3 to 4 percent of monthly income, covered the rest. The parents' program was a boon to families like the Dowlings, who were told they made $40 a month too much to be eligible for AHCCCS.

Dowling moved here from Colorado with his family three years ago to take a job in the real-estate industry and later took a sales job at American Express. The company laid him off in December as part of cost-cutting measures, and Dowling has been looking for work ever since.

The family's sole source of income is Dowling's wife, Danielle Smith, who works about 32 hours a week at a day-care center. Dowling and Smith are raising two girls, ages 8 and 3.

"When I read that letter that they were going to cancel it, I just didn't know what to do," Smith said. "We're already worried about what money we have for groceries this week."

Families affected by the program's end will have trouble finding similar care they can afford, advocates said.

"The impact is devastation," said Dana Naimark, president of the Children's Action Alliance, a Phoenix non-profit that advocates for social services. "Parents are making desperate phone calls to anywhere they can think of, and the problem is there are almost no alternatives for them."

AHCCCS recommends that families without health insurance seek care at community health centers, which provide basic care on a sliding-fee scale. But those centers have also lost state funding, advocates said, and some are being stretched to the breaking point.

The centers also can't provide the more specialized care needed by many people enrolled in KidsCare Parents.

Susan Stewart has a nodule on her lung that requires regular monitoring to ensure it does not become cancerous. The Gilbert resident can't afford the limited insurance offered by her job at a company that provides legal-support services, and her pre-existing condition has prevented her from getting private coverage.

KidsCare Parents gave Stewart affordable coverage that allowed her peace of mind as she raises her 12-year-old son, Taylor, who has a serious heart condition. Now, she is considering taking a pay cut so that she can qualify for AHCCCS.

"I don't want to sit at home and collect from the state," Stewart said. "But, sometimes, you're forced to do things for your kids that you wouldn't normally do."

Gov. Jan Brewer is "just devastated" by the end of the parents' program, spokesman Paul Senseman said. "We're talking about real cuts to working families who are not looking for a handout but a hand up," he said.

Brewer fought to protect KidsCare from cuts, Senseman said, but was unable to protect funding for the parents' program, considering the size of the budget shortfall and legislative opposition to raising taxes.

Now, Brewer is concerned that KidsCare, which serves more than 50,000 children, could be cut in upcoming fiscal 2010-11 budget negotiations. Brewer has advocated referring a temporary sales tax to the ballot to preserve funding for education, public safety and social services.

"It's just heartbreaking to see that, without additional revenues, these kind of cuts are going to happen," Senseman said.