Substantial numbers of Indian people rely on Medicaid for their primary health insurance coverage. When state Medicaid programs enroll Indians in managed care programs, several unintended consequences may ensue. This paper identifies some of the perverse consequences of Medicaid reform for Indians and the Indian health care system and suggests strategies for overcoming them. It discusses the desire of Indian people to receive culturally appropriate services, the need to maintain or improve Indian health care system funding, and the duty of state governments to respect tribal sovereignty. Because of their relatively small numbers, Indians may be treated differently under Medicaid managed care systems without significantly endangering anticipated program savings. Failure of Medicaid programs to recognize the uniqueness of Indian people, however, may severely weaken the Indian health care system.