Your guess is right on the money.
We (my wife and I) had two children living with us and as a condition of legal guardianship, we had to have them on Medicaid, as soon as we adopted them, they were removed from it because of our family income.
The real kicker here is that my wife and I didn't want them to be on Medicaid from day 1 and our primary insurer was perfectly willing to add them to our family plan at no extra cost as long as we were their legal guardians. The state (Illinois) demanded that we not remove them.
After the adoption was final, the state quickly removed them.
Let me see if I understand you. When you were the legal guardians, but not yet the parents, of the children the state insisted they stay on medicaid, but once you did become their parents they were willing to take them off, or actually insisted they be taken off medicaid, is that correct?
That’s a little silly, I suppose, but I can kind of understand it. I can see how the state still has some role to play when a person is a legal guardian and how that role for the state ends when the person becomes the adopted parent.
Your insurance plan may have allowed this, but others might not have (that is just a guess on my part) and I’m sure it is just easier to have the same system in place for all children who are in a guardianship situation.