The Health and Human Services Department said Wednesday afternoon that Indiana's Medicaid plan, which bans funding to Planned Parenthood, is illegal and must be changed.In a letter sent to Indiana's Medicaid director, Medicaid Administrator Donald M. Berwick said Indiana's plan will improperly bar Medicaid beneficiaries from receiving services. Berwick writes that federal law requires Medicaid beneficiaries to be able to obtain services from any provider qualified to provide services.The notification comes after Indiana passed a law banning federal funding to Planned Parenthood and as other states consider similar bans. Indiana can change its plan to conform with federal law, or the state could face penalties.Sen. Scott Schneider wrote the bill that is now Indiana law, prohibiting Medicaid funds from going to places that perform abortions. Schneider said he takes issue with the ruling from the Department of Health and Human Services that the law is illegal."When I offered this amendment, we did a lot of inquires and a lot of fact checking to make sure this was legal, and we think it is legal," Schneider said.Gov. Mitch Daniels said the decision to defund the program was based on budget cuts."We haven't changed services at all. We're going to spend every dollar, maybe more, that we should have anyway. This is only about whether one specific provider gets any of that money or not," Daniels said.Both the governor and the state's Family and Social Services Agency said they'll look to the attorney general's office for guidance on how to proceed. "I don't think anybody knows what the legal meaning of this letter is. I certainly don't," Daniels said.Betty Cockrum, president and CEO of Planned Parenthood of Indiana, said she agrees with the federal government's action against Indiana."It is incredibly gratifying to have the federal government confirm what we've been saying all along," Cockrum said.The attorney general's office said it is reviewing the letter and will determine options for the FSSA. Meanwhile, it will continue to defend the statute.Last month, a federal judge denied Planned Parenthood's request to block defunding. A hearing is set for next week on a temporary injunction request. A ruling could come in July.