Indiana Ends Managed Care for Nursing Home Patients
Indiana is stepping away from managed care for long-term care (LTC) Medicaid patients in nursing homes. Governor Michael Braun (R) signed House Bill 1277 into law, marking a significant shift in how the state delivers care to its most vulnerable residents. Under the new law, nursing home patients will exit the managed care system after 100 days. They will then move back to a fee-for-service (FFS) model. The changes take effect on July 1, 2027.
This decision makes Indiana one of the first states to formally walk back its commitment to managed Medicaid for institutional long-term care. Furthermore, it signals growing frustration among providers and policymakers about the effectiveness of private insurers in managing this population.
What Is Indiana’s PathWays for Aging Program?
A New System That Launched Just Two Years Ago
Indiana launched its PathWays for Aging managed care program in 2024. The program handed oversight of Medicaid coverage for long-term care patients to three major private insurers: Humana, Elevance Health, and UnitedHealthcare. Together, these companies managed coverage for approximately 117,000 Hoosiers. Of those, around 21,000 resided in nursing homes.
The state introduced PathWays for Aging with the goal of reducing costs and improving care coordination. Lawmakers hoped that private insurers could find efficiencies in the system, particularly by expanding access to home and community-based services (HCBS) and reducing unnecessary institutionalization. However, the program quickly ran into serious operational problems.
Why Did Managed Care Fail Long-Term Care Patients?
Billing Failures and Payment Delays
Two of the three insurers — Humana and Elevance Health — faced corrective action plans almost immediately after the program launched. State regulators cited persistent issues with billing accuracy, claims processing, and contract violations. These were not minor administrative errors. Instead, they reflected systemic failures that directly hurt nursing home operators and their residents.
Providers reported routine delays in receiving Medicaid reimbursements. Insurers rejected valid claims or processed them incorrectly. Nursing homes, which operate on thin margins, found it increasingly difficult to maintain staffing and services while waiting for payments they were legally owed.
Over $100 Million Owed to Nursing Homes
The financial toll proved severe. By 2025, nursing homes in Indiana were owed more than $100 million in late and inappropriately denied Medicaid payments. This amount reflects claims that insurers failed to process correctly or denied without adequate justification.
“We thought there was just a significant savings to be had,” said Paul Peaper, president and CEO of the Indiana Health Care Association (IHCA). Peaper had initially studied managed care reforms in New York to build a case for restructuring Indiana’s approach. However, the real-world results in Indiana told a different story.
What the New Law Changes
Return to Fee-for-Service Model
House Bill 1277 does not eliminate managed care entirely. Instead, it limits the scope of managed care for nursing home patients. After 100 days in a managed care plan, LTC patients in nursing homes will transfer back to the traditional fee-for-service (FFS) Medicaid model. This is the same model Indiana used before PathWays for Aging launched.
Under FFS, the state pays nursing homes directly for the services they deliver. There is no insurer acting as an intermediary. Providers receive payment based on actual claims rather than a fixed capitation rate paid to an MCO. This approach gives nursing homes more billing clarity and reduces the risk of claim denials from managed care organizations.
Peaper noted that the IHCA remained open to managed care playing a limited role — particularly for short-stay residents who might benefit from plan coordination. However, he argued that long-term residents in nursing homes did not benefit from the managed care model in practice.
How Indiana Compares to Other States
A Growing National Debate on Managed LTC
Indiana is not alone in questioning the managed care model for long-term care. By the end of 2023, 24 states had placed managed care organizations in charge of their long-term services and supports (LTSS) programs, according to the National Academy for State Health Policy. Like Indiana, many of these states originally turned to MCOs to increase access to HCBS and improve care coordination.
Moreover, Minnesota Governor Mike Walz recently proposed ending managed Medicaid in his state, where it has been in place since the 1980s. This signals that even states with long-standing MCO programs are reconsidering the model.
Aside from New York, which made significant revisions to its managed Medicaid program following earlier problems, no other states had made major changes — until now. Indiana’s law thus sets a notable precedent. It is the first clear legislative rollback of institutional LTC managed care in recent memory.
What This Means for Medicaid LTC Going Forward
Indiana’s decision reflects a broader tension in Medicaid policy. On one hand, states face mounting budget pressures. Medicaid spending grew 8.6% in fiscal year 2025 and is projected to rise another 7.9% in fiscal year 2026. Therefore, the appeal of managed care — with its promise of cost containment — remains strong.
On the other hand, the Indiana experience demonstrates that managed care organizations do not always deliver on those promises. When insurers fail to pay providers on time, the downstream effects fall on patients. Staffing levels drop, services get cut, and nursing homes struggle to maintain quality care.
“Is there a role for a managed care product for somebody who is truly that home-bound individual? Sure,” Peaper said. “But the needle wasn’t moving” for nursing home residents under the managed care model.
As states grapple with Medicaid reform under the federal budget reconciliation law, Indiana’s pivot back to fee-for-service may influence similar conversations across the country. Policymakers in other states will be watching closely to see whether Indiana’s approach improves outcomes — and whether the MCO model for institutional LTC has more failures yet to come.
