Indiana Just Pulled the Plug on Managed Medicaid for Nursing Homes After Burning Through $91M — And 6 Other States Are Watching

Indianapolis, Indiana — When Indiana launched PathWays for Aging in July 2024, state officials promised a streamlined Medicaid program that would deliver better care at lower cost. Two years later, Governor Michael Braun is signing legislation to kill it.

The state’s mandatory managed Medicaid program for long-term care will revert to fee-for-service by July 2027, marking one of the most significant policy reversals in recent memory — and a cautionary tale for the 27 states currently experimenting with similar models.

The $91 million question

An independent analysis by Clifton Larson Allen found Indiana was spending $91 million annually more on nursing home residents under PathWays than it would have under traditional fee-for-service Medicaid. That’s not counting the estimated $300 million in administrative overhead that went to managed care organizations without any measurable improvement in patient outcomes.

“Our providers weren’t being paid more. We weren’t servicing more people, and so that $300 million more was just due to the existence of the managed care entities,” Paul Peaper, president of the Indiana Health Care Association, told industry sources.

The financial pain came with operational chaos. Three private insurers — Humana, Elevance Health, and UnitedHealthcare — collectively owed nursing homes more than $100 million in delayed or improper payments. Smaller facilities, operating on razor-thin margins, faced existential cash flow crises.

What went wrong

PathWays moved approximately 117,000 long-term care beneficiaries into private insurance hands. The theory was sound: managed care organizations could negotiate better rates and coordinate services more efficiently than state bureaucrats.

The reality was denial letters, billing failures, and contract violations that left providers scrambling. Insurers were eventually placed on corrective action plans, but the damage was done.

The new law, HEA 1277, doesn’t just unwind PathWays for nursing home residents. It also sets individual cost limits for waiver participants and directs projected savings toward cutting a waitlist of nearly 12,000 people seeking other long-term care services.

The national implications

Indiana’s reversal lands amid a broader push toward managed Medicaid across the country. Industry experts say the problem isn’t the concept — it’s the execution.

Steve LaForte, CFO at Cascadia Healthcare, which operates in seven states including Idaho and Washington, described the difference in implementation as stark. Idaho’s transition was “really clunky,” with payment delays and bureaucratic hurdles. Washington’s system, by contrast, runs smoothly.”In Washington, the trains are running on time,” he said.

Nicole Fallon of LeadingAge attributes the variation to state design choices. While roughly half the states have some form of Medicaid managed care, the structure, enrollment requirements, oversight, and integration with existing programs differ dramatically — producing wildly different outcomes for providers and patients alike.

Looking forward

Indiana’s reform also requires the state to seek federal approval for a standalone assisted living waiver, intended to improve cost efficiency and expand access beyond nursing home walls.

For the broader industry, the lesson may be that managed care works — when states hold insurers accountable, design programs carefully, and don’t outsource the public safety net to companies that treat delayed payments as a business strategy.