Medicaid work requirements delayed until 2027 following federal action

Lawmakers who voted to implement work requirements for Medicaid beneficiaries next summer will have to wait another six months before they can take effect, and the state is still waiting to hear if the federal government will approve other portions of the health care plan.

Meanwhile, Indiana's financial toll under a new federal law is beginning to take shape, though final numbers are currently under review, according to comments before the State Budget Committee on Wednesday.

More than 652,000 Hoosiers are enrolled on the Healthy Indiana Plan, or HIP, as of August. State lawmakers voted earlier this year to impose work requirements on the low- to moderate-income Hoosiers starting in July — though many are already working and others may qualify for exceptions such as child care commitments or substance use treatment.

But the federal government won't let Indiana move forward with work requirements until 2027, when all Medicaid expansion enrollees must meet that condition as part of President Donald Trump's "Big, Beautiful Bill." He signed that into law this summer.

Other parts of Indiana's HIP 3.0 proposal are still under consideration, including an expansion on provider taxes, cost-sharing requirements and wellness incentives.

"We are attempting to revise the benefit package to reinsert personal responsibility and give people carrots as well as sticks," said Mitch Roob, the secretary of the Family and Social Services Administration. "The Big, Beautiful Bill gives them several sticks. Regarding cost-sharing requirements, we'd like to provide them with several carrots."

For example, he said, getting a flu shot would decrease someone's cost-sharing requirement under Indiana's proposal — which may not be possible under federal rules.

Roob previously led the administration under former Gov. Mitch Daniels, introducing the first version of HIP nearly two decades ago.

Overall, Medicaid is Indiana's fastest-growing expense, increasing from $2.1 billion in 2017 to nearly $5 billion in 2027.

Part of those increases can be attributed to Applied Behavior Analysis therapy and PathWays attendant care costs, he said. The first is a popular option for parents with autistic children while the second pays individuals caring for those 60 and older.

Additionally, expenses for Federally Qualified Health Centers grew during that time. In the 2021 fiscal year, costs were under $300 million. This year, it's roughly $500 million.

The sites provide low-cost and free health care services to underserved populations, though costs vary from clinic to clinic. One center, Roob noted, cost the state $600 per visit.

"We're working with the federal government to try to get this under control. We have very little control because the … rules put in place by the federal government," Roob said.

Impact of the Big, Beautiful Bill

Following pushback from rural providers, which have a disproportionately high number of patients who rely on Medicaid, Congress created a $50 billion Rural Health Transformation Program.

States must apply to get those funds by Nov. 5, 2025, with $10 million available annually for the next five years. According to the U.S. Department of Health and Human Services, the program has five strategic goals: improving rural health, increasing access, workforce development, investing in innovative care models and fostering technology adoption.

For Indiana, Roob floated the possibility of improving Indiana's emergency services in light of the rural ambulance shortage or bolstering prenatal and postpartum care for pregnant women.

But the law threatens Indiana's finances in other ways, specifically by capping provider taxes. By taxing hospitals at 6%, the state leverages an increased federal reimbursement to those providers and uses those dollars to fund its HIP obligation. The federal government pays for 90% of HIP expenses while the state uses provider taxes, along with taxes on cigarettes, to pay for the last 10%.

The new federal law would limit that provider tax to 3.5%, limiting the money Indiana could collect. That 3.5% cap would also apply to provider taxes imposed on managed care entities — a levy Indiana doesn't have, though other states do.

The limits, overall, "are unfortunate for us," Roob said, though they won't go into effect for a few years. Until then, Roob and other Indiana leaders hope the federal government will allow Indiana to impose a 6% tax on managed care entities until then.

"This will create significant stress for the Indiana Medicaid program, not necessarily in 2027, 2028 and 2029," Roob said. "But in the years after that, it looks tough."

Indiana will also have to pay more to administer food benefits — also known as the Supplemental Nutrition Assistance Program, or SNAP. For the next fiscal year, Indiana will pay $36 million more. After that, costs go up to $50 million moving forward, he said.

Reining in health care costs

Indiana's Medicaid costs don't exist in a vacuum, rising and falling with overall health care costs. High hospital prices, in particular, drive costs up for government and private insurers alike — though Roob said health outcomes were "substandard."

Twenty years ago, he said, the assumption was that hospital prices were high because of the state's large uninsured population.

"Today, despite near universal insurance coverage, hospital costs have skyrocketed without corresponding improvements in outcomes," Roob said.

Hospitals resisted a legislative effort earlier this year establishing so-called "price caps," delaying any associated penalties until 2029. Under that law, the state will calculate an "average hospital rate" based on Medicare for certain inpatient and outpatient services.

Roob unveiled a new state effort to use Medicaid reimbursements as a tool to lower hospital costs.

The formula for Medicaid rates will vary, taking into account whether the facility is a county, critical access or rural hospital. Those whose commercial rates are significantly higher than Medicare rates will receive less from Medicaid, and vice versa.

Medicare covers seniors and has its rates established by the federal government — while Medicaid covers low- and moderate-income Hoosiers and is operated by the state.

Though hospital prices — and general health care cost increases — push up Medicaid expenses, Roob has sought to control the state's responsibility with aggressive budgeting tactics and monthly financial reviews.

"Unfortunately, we have built a health care delivery system that we can no longer afford. And it's time that we face that reality and make the necessary changes in that delivery system because every dollar we send to a hospital is one dollar we don't send to a school," Roob said.

Committee member Sen. Fady Qaddoura, D-Indianapolis, said he disagreed with that assessment.

"It is probably correct from your perspective as the secretary of FSSA. From my perspective as a legislator, we have few critical functions as a state to deliver to the public: education is one, health care is two, public safety is three (and) infrastructure is four," Qaddoura said.

He criticized state spending on "misplaced" priorities, including economic development initiatives and prison upgrades.

"To me, it is not either or. It is not a choice between health care and Medicaid. It's a sick child that needs health care and still needs to go to school," Qaddoura said.

Specifically, he said the state could improve if it invested more in preventative health care and insurance reform.

The budget committee will meet again at the end of October.