Alexander Ryking

Louise Cohoon was at home when her 80-year-old mother called in a panic from Terre Haute: The $97 monthly Medicaid payment she relied on to supplement her $600-a-month income had been cut without warning by a private company that had taken over the state’s welfare system.

Later, the state explained why: She failed to call into an eligibility hot line on a day in 2008 when she was hospitalized for congestive heart failure.

“I thought the news was going to kill my mother, she was so upset,” said Cohoon, 63. Her mother had to get by on support from cash-strapped relatives for months until the state restored her benefits under pressure from Legal Services attorneys.

Cohoon’s mother, now suffering from Alzheimer’s disease, was one of thousands of Indiana residents who abruptly and erroneously lost their welfare, Medicaid or food stamp benefits after Republican Gov. Mitch Daniels privatized the state’s public assistance program — the result of an efficiency plan that went awry from the very beginning, the state now admits.

Though the $1.37-billion project proved disastrous for many of the state’s poor, elderly and disabled, it was a financial bonanza for a handful of firms with ties to Daniels and his political allies, which landed state contracts worth millions.

Federal officials said Wednesday that the new Indiana law cutting Medicaid funding to Planned Parenthood violates Medicaid rules — a determination that could cost the state millions and possibly even billions of dollars.

The U.S. Department of Health and Human Services informed state officials by letter that it was denying Indiana’s new Medicaid plan because states can’t pick and choose where recipients receive health-care services.

What happens next is, at best, a guess. But almost certain is that it will add fuel to a legal and political battle likely to be watched closely across the nation.

An HHS official would not comment on what might happen if Indiana does not change its law, though one possible ramification would be withholding funding.

Indiana relies on about $4 million in federal Medicaid family-planning funds and more than $4 billion in total Medicaid dollars.

“People make these efforts a lot, they just don’t go anywhere,” he said. “If we start letting people subpoena the governor for testimony he’ll end up spending his life testifying anytime anyone sues the state.”

[Indiana Republican governor Mitch] Daniels’ political opponents within the state are all too happy in the meantime to follow IBM’s lead to criticize his handling of the failed contract.

“Mitch Daniels has no right — absolutely no right — to hide behind immunity when he came up with the privatization idea, awarded the contract to his buddies and then watched them drive the bus off a cliff at a tremendous cost to our neediest citizens,” Indiana Democratic Party Chair Dan Parker said in a statement this week. “The court needs to understand that there’s a huge difference between a Governor being dragged into every lawsuit and a Governor single-handedly creating the basis for the lawsuit through his reckless actions.”