As feds cut key fee, Indiana Medicaid chief warns changes needed to avoid ‘catastrophic situation’

The leader of Indiana’s Medicaid program says the state must change up a widely used low-income health insurance program as the federal government slashes a key funding source over the next five years.

The phase-down is one way President Donald Trump’s administration is pushing health costs back onto states. Last year’s One Big Beautiful Bill Act also increases state shares for other aspects of Medicaid and for food aid.

“Changes in the hospital assessment fee will have a material, but not catastrophic, effect on the budget,” said Secretary Mitch Roob, whose Family and Social Services Administration administers Medicaid in Indiana. “And we need to recognize that … this budget cycle and begin planning for that, so we don’t end up in a catastrophic situation in 2032.”

At a quarterly financial meeting Tuesday, Roob revealed early projections produced with consultant Deloitte. They’ll be “refined” before an upcoming budget presentation to lawmakers.

“In December, we’ll have a complete Medicaid forecast, but I don’t want to catch you all off guard because these numbers are more dire than I would like them to be,” Roob said.

The hospital assessment fee, a tax levied by the state, is used to leverage a higher federal reimbursement rate for individual facilities.

Indiana keeps some of the fee to fund its share of expenses for the Healthy Indiana Plan, which serves an “expansion” population — hundreds of thousands of working-age adults who earn slightly too much for traditional Medicaid coverage — along with pregnant women, low-income caretakers and others.

Starting late next year, the One Big Beautiful Bill Act phases the 6% fee down annually to 3.5% in late 2031.

The state made more than $2 billion off the 6% fee and intergovernmental transfers over the last fiscal year, which ended in June. At 3.5%, the state would’ve lost roughly $900 million — or 40% of what was collected.

“That’s the purchasing power decline that we’re going to see by 2032,” Roob said.

He said officials must begin planning for the hit, “so we don’t end up in a situation where we have to reduce rates or reduce eligibility.”

Roob doesn’t think the state can “cut (its) way to solvency.”

“We’ve got to find ways to deliver care less expensively, prospectively, than we are today,” he said. “We’ve got to find better care models. I don’t know what that is. But we have to develop that care model.”