“Risk-of-Institutionalisation” Re-affirmed: Seventh Circuit Requires States to Pay Legally-Responsible Relatives for Attendant Care When Needed to Avoid Segregation

1. Introduction

Indiana Protection and Advocacy Services Commission v. Indiana Family and Social Services Administration, Nos. 24-2633, 24-2741 & 24-2770 (7th Cir. Aug. 11, 2025) squarely confronts the intersection between (i) States’ budget-driven changes to Medicaid Home- and Community-Based Services (HCBS) waivers and (ii) the federal disability-rights mandate that services be delivered in “the most integrated setting appropriate.”

Two medically-fragile children, E.R. (6) and G.S. (10), relied exclusively on their mothers—who are also their legally-responsible parents—for round-the-clock attendant care. Indiana’s July 2024 waiver overhaul barred payment to such legally-responsible individuals (LRIs), threatening immediate institutionalisation of the children. The district court granted layered preliminary injunctions, culminating in an order compelling the State to continue paying the mothers at the pre-change attendant-care rate until skilled nurses are actually in place.

On appeal, the Seventh Circuit (Hamilton, J.) affirmed, holding that (a) the children are at serious risk of institutionalisation, (b) paying their mothers is a reasonable ADA accommodation that does not “fundamentally alter” Indiana’s programme, and (c) the relief neither violates federal Medicaid regulations nor forces Indiana to self-fund outside the Medicaid framework. The decision lays down an important precedent on the scope of the ADA integration mandate and the limits of State reliance on budgetary defences.

2. Summary of the Judgment

Private right of action: After the Supreme Court’s 2025 decision in Medina v. Planned Parenthood, the panel declined to decide whether specific Medicaid Act provisions remain privately enforceable. It resolved the case solely under Title II of the ADA and the Rehabilitation Act.
Likelihood of success: Plaintiffs showed a high probability of prevailing on the ADA “integration mandate.” Prohibiting LRI-provided attendant care placed the children at “serious risk” of institutionalisation, triggering Olmstead protections.
Fundamental-alteration defence rejected: Indiana failed to show that paying LRIs for attendant care was a “new service” or fiscally unsustainable. The court stressed that the State already funds identical care in institutions and had historically reimbursed LRIs without CMS objection.
Armstrong defence rejected: Plaintiffs were not attempting to set Medicaid rates; rather, they sought access to an already-defined service from a different provider class. Armstrong v. Exceptional Child Center therefore did not bar relief.
Equitable balancing: The irreparable harm to the children—loss of medically necessary home care—outweighed speculative risks of federal funding loss. The order does not compel Indiana to violate federal law because CMS can reimburse “extraordinary” LRI services.
Result: October 1 injunction affirmed; case remanded for continued monitoring and potential remedial tailoring.

3. Analysis

3.1 Precedents Cited and Their Influence

Olmstead v. L.C., 527 U.S. 581 (1999) – Cornerstone for community integration; the panel applied its three-part test and emphasised that risk of institutionalisation suffices.
Steimel v. Wernert, 823 F.3d 902 (7th Cir. 2016) – Confirmed “serious-risk” standard; relied on to show Plaintiffs need not be institutionalised first.
Radaszewski v. Maram, 383 F.3d 599 (7th Cir. 2004) – Distinguished between “new service” and a reasonable modification of existing benefits; guided rejection of Indiana’s “new-service” theory.
Vaughn v. Walthall, 968 F.3d 814 (7th Cir. 2020) – Cautioned courts against ordering States to pay non-reimbursable costs, but here no evidence of such risk; also used to frame ‑“reasonable modification vs. new service”- analysis.
Bontrager v. Indiana FSSA, 697 F.3d 604 (7th Cir. 2012) – Guided balancing of equities: medically necessary care trumps budgetary concerns.
Armstrong v. Exceptional Child Center, 575 U.S. 320 (2015) – Cited by State; court clarified Armstrong’s limited reach (rate-setting only).
Medina v. Planned Parenthood South Atlantic, 145 S.Ct. 2219 (2025) – Cast doubt on §1983 Medicaid claims; court sidestepped by using ADA.

3.2 Court’s Legal Reasoning

ADA Integration Mandate Triggered
The panel accepted the district court’s factual findings—amply supported by medical evidence—that without LRI attendant care, both children would be institutionalised. Serious risk suffices to invoke ADA safeguards (Steimel).
Reasonable Modification v. Fundamental Alteration
• Changing who may provide attendant care does not create a new service; it merely adjusts provider qualifications.
• Fiscal defence failed: attendant care cheaper than institutional placement; State offered no evidence CMS would withdraw funds.
• Court noted the possibility of authorising LRIs as “providers of last resort,” a middle-ground consistent with CMS guidance.
Federal Participation & Regulatory Compliance
• 42 C.F.R. § 440.167 limits federal match for ordinary parental duties but not for “extraordinary care.”
• 42 C.F.R. § 431.250(b)(2) permits FFP for judicially-ordered payments.
• Hence injunction neither forces State to self-fund nor violates federal law.
Armstrong Non-application
Since Plaintiffs did not seek higher rates—only continuity of the existing benefit—the case did not involve §1396a(a)(30)(A) ratemaking.
Equitable Balance & Public Interest
• Children face imminent medical jeopardy; mothers face impossible choice.
• State’s alleged harms are speculative; historic CMS acquiescence undermines threat narrative.
• Public interest always favors enforcement of federal civil-rights statutes.

3.3 Likely Impact

For States: Budget-driven blanket bans on LRI compensation risk ADA liability unless robust alternatives exist. States may need to draft “provider-of-last-resort” clauses rather than categorical exclusions.
For Medicaid Beneficiaries: Reinforces a litigation roadmap: prove “serious risk” and show accommodation is cheaper or equivalent to institutional care to defeat fundamental-alteration defences.
For Future Litigation: By decoupling decision from private Medicaid Act claims (due to Medina), the court underscores the ADA as a potent stand-alone remedy; expect more ADA-based HCBS suits.
Administrative Practice: Encourages CMS and States to clarify when and how extraordinary LRI care can be reimbursed; may prompt updated sub-regulatory guidance.

4. Complex Concepts Simplified

ADA “Integration Mandate”: A rule requiring public entities to deliver services in settings where persons with disabilities interact with non-disabled people to the greatest extent possible.
Serious-Risk Standard: Plaintiff need not already be institutionalised; it is enough that a challenged policy makes institutionalisation likely.
Home- and Community-Based Services (HCBS) Waiver: Optional Medicaid programme letting States waive certain rules to provide supports at home instead of institutions; must be CMS-approved and “cost-neutral”.
Legally-Responsible Individual (LRI): Parents of minors or spouses, traditionally excluded from Medicaid payment for basic personal-care tasks, unless State and CMS allow exceptions.
Fundamental-Alteration Defence: A State can refuse an accommodation if it would so change the nature or cost of a service that it effectively creates a new programme or undermines others’ services.
Federal Financial Participation (FFP): The federal matching funds CMS pays States for allowable Medicaid expenditures. If CMS disallows costs, the State must repay or absorb them.

5. Conclusion

The Seventh Circuit’s decision fortifies the principle that States cannot hide budgetary expedients behind waiver language when those expedients create a serious risk of institutionalising people with disabilities. By treating parental attendant care as a reasonable, cost-effective accommodation—and by rejecting speculative fiscal harms—the court sends a clear warning: integration mandates have teeth, and courts stand ready to bite when States’ cost-containment strategies stray into discrimination.

Going forward, Indiana (and other jurisdictions) must thread the needle—tight cost control, but with formal mechanisms to authorise and fund extraordinary LRI services when no other safe, community-based option is available. Meanwhile, advocates will likely deploy this precedent to challenge similar blanket exclusions nationwide, ensuring that the promises of Olmstead remain a living, enforceable reality.