INDIANAPOLIS – A looming showdown over a new Indiana law that cuts funding for the Planned Parenthood organization may test how far Republican-led states are willing to go in pressing 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 financially weakening organizations that provide abortions. Other conservative states have considered such action 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 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 forgo federal funding,” said Christopher Arterton, professor of political management at George Washington University and an expert on federal-state issues.

Is Indiana willing to risk $4.3 billion in Medicaid money to strike a blow for the anti-abortion movement? Some conservative members of GOP-controlled legislatures argue it’s time for states to risk serious penalties to defend their principles and throw off federal mandates.

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.

The Obama administration directed Indiana last week to drop its ban on Planned Parenthood funding.

The Department of Health and Human Services said the state can’t 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 last 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.

Republican lawmakers in Indiana are refusing to back down.

“Indiana’s on solid legal ground,” said state Sen. Scott Schneider, R-Indianapolis, who sponsored the measure to cut off Planned Parenthood.

Indiana conservatives are hoping the administration will blink if it comes to cutting off health insurance for poor people.

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.

Possible compromises 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.