A looming showdown over Indiana's new law that cuts funding for the Planned Parenthood organization may test how far Republican-led states are willing to go in pressing their tough new anti-abortion agendas.

The stakes are high. The future of health care for more than 1 million poor and elderly Indiana residents hangs in the balance.

Indiana became the first state this year to cut off all government funds to Planned Parenthood, fulfilling conservatives' goal of not giving taxpayer money to organizations that provide abortions. Other conservative states have considered such action in recent years but backed away under the threat of loss of all federal money for their Medicaid programs.

The willingness of Indiana, led by a Republican governor and GOP-controlled Legislature, to challenge the federal government and risk a huge financial penalty could take the issue into uncharted legal and political territory. Conservative leaders in other states will be watching the confrontation as they plan their own action on abortion and other social issues.

"I think this is an instance in which a state is really trying to overturn national policy and in so doing is likely to forego federal funding," said Christopher Arterton, professor of political management at George Washington University, a consultant to the Democratic party and an expert on federal-state issues.

Is Indiana willing to risk $4.3 billion in Medicaid money to strike a blow for the right-to-life movement? Some conservative members of Republican-controlled legislatures argue it's time for states to risk serious penalties to defend their principles and throw off federal mandates. And the Medicaid program, with its rising costs and strict rules, has been a particular target of ire.

Is the Obama administration actually willing to leave low-income families without health care to punish a defiant state?

"Like any game of chicken, it's about who blinks first," said Ed Haislmaier, senior research fellow at the Heritage Foundation's Center for Health Policy, a conservative think-tank.

Planned Parenthood has filed suit to challenge Indiana's law, so the courts could have a say in how the dispute is resolved.

The Obama administration directed Indiana this week to drop its ban on Planned Parenthood, which the legislature passed this spring after becoming considerably more Republican and conservative in last fall's midterm election. The Department of Health and Human Services said the state cannot legally pick and choose which agencies provide health care to people covered by the federal-state program. The warning letter cited a federal statute that directs the withholding of all Medicaid funding from a state if it violates federal law.

White House spokesman Jay Carney said this week that 19 states have gotten into disputes with the Obama administration over health care funding, and all amended their plans to keep their money. He said he expects Indiana to do the same.

Arizona reversed course last year after HHS threatened to withhold money because the state had frozen its children's health program. Some Republican lawmakers in Texas also proposed dropping out of the Medicaid program this year but backed away because of the financial impact.

Republican lawmakers in Indiana are refusing to back down.

"Indiana's on solid legal ground," said state Sen. Scott Schneider, an Indianapolis Republican who sponsored the measure to cut off Planned Parenthood. "There's no reason for us to change course at this time."

Indiana conservatives are clearly hoping the administration will blink if it comes to cutting off health insurance for poor people. The money pays for all kinds of routine health care.

The White House and HHS "have made the decision they are willing to drive those stakes that much higher at the risk of poor people's health," said Sue Swayze, legislative director of Indiana Right to Life, which is supporting the Indiana law.

Carrying out the threat could be difficult, Haislmaier said.

"From a political standpoint it is interesting whether the Obama administration has really thought through the implications," he said.

Possible compromises or half-measures could settle the matter.

Indiana Gov. Mitch Daniels, who did not push for the Planned Parenthood law, could ask state lawmakers to repeal it. The federal court in Indianapolis that is hearing Planned Parenthood's legal challenge could block the law from going into effect, buying time for changes.

The federal Medicaid statute also gives HHS Secretary Kathleen Sebelius latitude to withhold only a portion of Indiana's Medicaid dollars, cushioning the impact.

Senate Appropriations Chairman Sen. Luke Kenley, a Republican who supported the Planned Parenthood ban, said the state should seek some deal to keep people from losing their coverage.

"If the state can't reach an agreement with the federal government, then the state should back off in the face of losing all its Medicaid funding," he said.

Kansas state lawmakers approved a budget earlier this month that restricts funding for Planned Parenthood. North Carolina lawmakers also are expected to block funds for the group.

HHS issued a warning letter to all 50 states this week, effectively firing a "shot across the bow" of others considering similar actions, said Betty Cockrum, president of Planned Parenthood of Indiana.