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Actually, Whirled PEas, that is incorrect. The insurance company also has to be in AZ. A couple can live and work in AZ, and have BCBS Texas, for example, and that law would not apply.
To the OP, how does medicaid decide which expenses are the birth mother's and which are the baby's? Under normal cirucmstances, a teen mother can be under her parent's insurance, but the baby's expenses are not covered. How does this jive w/ what you described?