Indiana Medicaid chief urges changes as federal fee cuts threaten future budget strain

The head of Indiana’s Medicaid program says the state will need to adjust a major low-income health coverage program as the federal government reduces an important funding source over the next five years.

The reduction is one way President Donald Trump’s administration is shifting more health costs to states. Last year’s One Big Beautiful Bill Act also raises state obligations for other Medicaid costs and for food assistance.

“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 oversees 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.”

Roob shared early projections prepared with consultant Deloitte during a quarterly financial meeting. He said the numbers will be “refined” before an upcoming budget presentation to lawmakers.

“We’ll have a complete Medicaid forecast later, 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 is a state tax used to draw a higher federal reimbursement rate for individual facilities.

Indiana keeps part of the fee to help finance its share of Healthy Indiana Plan costs. HIP covers an “expansion” population — hundreds of thousands of working-age adults who earn slightly too much for traditional Medicaid — as well as pregnant women, low-income caretakers and others.

Under the One Big Beautiful Bill Act, the 6% fee will begin phasing down in the coming years and fall to 3.5% by late 2031.

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

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

He said state leaders need to start preparing for the impact “so we don’t end up in a situation where we have to reduce rates or reduce eligibility.”

Roob said he does not believe 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.”